The Indonesian rupiah has plunged to its weakest record against the US dollar, with the exchange rate hitting Rp17,600 per dollar as of Friday (May 15). This unprecedented depreciation is prompting the public to brace for tougher times, as experts predict a significant increase in the prices of daily necessities.
Indonesia’s economy is heavily reliant on imported raw materials, which constitute a staggering 70% of its total material inputs. These imports span critical sectors including chemicals, textiles, electronics, oil and gas, pharmaceuticals, and even private vehicles. Essentially, a large majority of the finished products from these industries find their way into our homes, stored in drawers, cupboards, bedrooms, and kitchens.
As the rupiah continues its downward trajectory, the cost of these essential imported raw materials inevitably surges, given that transactions are predominantly conducted in US dollars. “This phenomenon makes the cost of production for domestic manufacturers increasingly expensive,” states Teuku Riefky, a researcher at the Institute for Economic and Community Research (LPEM FEB UI).
Amidst this challenging environment, producers typically face two difficult choices: either raise the prices of their goods or reluctantly slash their profit margins. Anecdotal evidence, however, suggests that most opt to increase prices or reduce product portions. Riefky emphasizes the direct consequence for the general public: “The implication for daily life is, unequivocally, a rise in the cost of living.”
Beyond raw materials, Indonesia also imports approximately 20% of its capital goods. This category includes vital industrial equipment such as factory machinery, industrial robots, aircraft, trains, and laboratory equipment. Furthermore, around 9% of Indonesia’s imports consist of consumer goods. This segment encompasses items like fruits, meat, clothing and footwear, mobile phones, laptops, cosmetics, skincare products, and significantly, over 90% of its soybeans.
The Local Impact: Struggles of Small Businesses
The ripple effect of the weakening rupiah is profoundly felt by small business owners like Joko Wiyatno, a tofu maker in Semarang, Central Java, who finds himself increasingly squeezed. Over the past three months, soybean prices have soared from around Rp7,000 per kilogram to an alarming Rp10,500 per kilogram for even the cheapest varieties. Concurrently, market traffic has dwindled, leaving his stalls quieter.
“Raising prices right now wouldn’t be appropriate because purchasing power has plummeted so much,” Joko lamented to journalist Kamal, reporting for BBC News Indonesia. His compromise? He has resorted to “reducing the portion size.” He explains, “If we reduce the portions, the tofu automatically becomes thinner or less substantial. The size is somewhat smaller.” For the 53-year-old, soybean prices reaching Rp10,000 per kilogram are already “overwhelming,” and he dreads to imagine what would happen if they climb further. This challenge is compounded by concurrent price hikes in other essential materials; plastic costs have surged by 100%, and cooking oil by about 25%, according to Joko.
Joko indicates that if the pressure becomes unbearable, he and other artisans might reluctantly consider raising prices. A similar strategy of shrinking product size is also employed by Sururi, a tempeh maker in Makassar, South Sulawesi. “If I increase the price, customers will definitely go somewhere else. I’ll lose all my customers,” Sururi confided to journalist Muh. Aidil, reporting for BBC News Indonesia.
He noted that soybean prices have been rising for several months, coinciding with “upheavals abroad.” Previously, he bought soybeans at Rp10,800 per kilogram; now he needs Rp11,000 per kilogram, even with a bulk discount for purchasing 500 kilograms at once for 12 days of production. “The prices are going to go up again,” remarked the man who has been making tempeh for over 30 years. Currently, Sururi sells his tempeh for Rp5,000 per piece, sometimes having to cut it even smaller at customers’ request.
The Anomaly of Soybean Imports
While the rupiah’s weakening naturally impacts soybean imports, other critical factors contribute to persistently high local prices. A study by the NEXT Indonesia Center reveals that import access, largely controlled by a select few large global-networked enterprises, enables them to “manipulate prices” to maximize profits. This means that even when global soybean prices decline, these entities can maintain high domestic prices, preventing global market dynamics from being fully reflected in the local market.
The NEXT study, conducted between February 2024 and February 2026, found that imported soybean prices in the domestic market ranged from Rp13,300 to Rp15,100 per kilogram. This stands in stark contrast to international soybean prices, which were significantly lower, at Rp6,000 to Rp8,100 per kilogram. “This wide price disparity is difficult to explain solely by additional logistics and distribution costs,” noted Ade Holis, Head Researcher at NEXT, asserting the study’s continued relevance amidst ongoing rupiah depreciation.
Holis posits that with the current rupiah weakening, the profit margins for major soybean players might decrease, though not substantially, assuming they do not pass on the price increases to consumers. However, if they do raise retail prices, it is ultimately the public that will bear the brunt of the price hikes resulting from the rupiah’s depreciation. Hani Perwitasari, an agricultural socio-economic lecturer at Gadjah Mada University (UGM), confirms that this phenomenon is prevalent across nearly all food imports.
When global prices rise, domestic prices swiftly follow suit. Yet, when global prices fall, domestic prices do not always decrease rapidly, often remaining stubbornly high. This asymmetry is driven by market players’ desire to protect profits, compounded by distribution costs and existing stock. “This is what we call the marketing channel,” she explains. “From farmers to collectors, collectors to consumers, even starting from imports. The longer this chain, the greater the likelihood of price asymmetry.”
Understanding the Rupiah’s Continued Weakness
Teuku Riefky identifies two primary factors contributing to the rupiah’s sluggish performance against the US dollar.
First, external factors play a significant role. The US-Israel conflict with Iran, which commenced on February 28, has disrupted oil and gas distribution, causing prices to skyrocket. The duration of this conflict remains unpredictable. Consequently, investors are withdrawing capital and investments from companies, securities, deposits, real estate, and other ventures in developing nations, redirecting them to more secure and stable countries. “This external factor is not only affecting Indonesia but various developing nations are experiencing capital outflows, which, in turn, weakens their currencies,” Riefky explains.
Second, domestic factors contribute to the rupiah’s vulnerability. Riefky points to government revenues and expenditures, debt servicing, and reserve funds as influencing factors. Indonesia’s fiscal outlook has drawn warnings from international credit rating agencies Moody’s and Fitch. These agencies have noted a negative outlook for Indonesia due to policy uncertainties, coupled with low revenue collection and high spending. This suggests a risk of deteriorating national financial conditions in the future. “This causes investors to doubt our State Budget’s (APBN) repayment capacity, leading to capital outflow… This also fuels the rupiah’s weakening,” he adds.
Measures by Bank Indonesia, Government, and Businesses
When the dollar exchange rate reached Rp17,424 on May 5, 2026, Bank Indonesia (BI) unveiled a seven-pronged strategy to bolster the rupiah’s value. These measures include direct intervention in both domestic and international foreign exchange markets, attracting foreign capital back through financial instruments like BI Rupiah Securities, and purchasing government bonds (SBN) to maintain market stability. Additionally, BI is enhancing banking liquidity, tightening rules for dollar purchases to prevent excessive speculation, providing flexibility for banks to participate in global market interventions, and intensifying oversight of banks and corporations with high dollar purchasing activities.
“We are increasing supervision of banks and corporations where we observe high dollar purchasing activity; we are sending supervisors there,” stated BI Governor Perry Warjiyo, as quoted by Tempo. Meanwhile, the government, through the Ministry of Finance, plans to activate several market stabilization instruments starting Wednesday (May 13). One such measure involves intervention in the state bond market or Government Securities (SBN).
Separately, the Coordinating Minister for Food Affairs, Zulkifli Hasan, announced that the government intends to stabilize food prices through subsidies. This budgetary injection aims to alleviate the burden of production and distribution costs. “If prices exceed the HET (Highest Retail Price), the government will certainly step in to provide subsidies,” Zulhas was quoted by Kompas on Wednesday (May 13), indicating these subsidies would likely come from “disaster or unforeseen circumstances” budget allocations.
Sarman Simanjorang, Deputy Chairman of the Indonesian Chamber of Commerce and Industry (Kadin), stated that businesses are currently striving to absorb cost increases rather than immediately pass them on to consumers. These efforts involve implementing cost-saving innovations in production, seeking alternative domestic raw materials, and subtly reducing product sizes without raising sales prices.
Potential Future Scenarios
The prolonged weakening of the rupiah is now starting to affect the psychological resilience of business actors, Sarman Simanjorang added. If the rupiah’s depreciation continues for an extended period, the endurance of businesses will be further tested, potentially impacting business expansion and employment absorption. There is also concern that rising operational and production costs will eventually be transferred to consumers, leading to broad price increases. Such price adjustments would undoubtedly diminish public purchasing power and fuel inflation.
“If this exchange rate weakening is prolonged, it is feared that business turnover will be further suppressed, eventually leading to workforce rationalization,” Sarman was quoted by Kompas on Wednesday (May 13). Teuku Riefky, an economist from the University of Indonesia, outlines two worst-case scenarios should the rupiah continue its decline.
First, Indonesia risks entering a debt crisis, potentially struggling to meet its debt obligations on time, especially if the government fails to curb its spending. Second, if the government does reduce spending, it would likely result in a deceleration of economic growth. As of March 2026, Indonesia’s government debt reached Rp9,920.42 trillion. However, Minister Purbaya asserts that this figure remains manageable, with a debt-to-GDP ratio of 40.75%, well below the 60% threshold. Purbaya also indicated that the government is preparing a Bond Stabilization Fund (BSF) mechanism for crisis situations, although details on its implementation and budget remain unspecified.
The 2026 State Budget (APBN) allocates spending for 98 ministries and agencies. Based on Book II of the 2026 Financial Note, and still maintained to date, the ministries and agencies with substantial spending budgets include:
- National Nutrition Agency: Rp268 trillion
- Ministry of Defense (Kemhan): Rp187.10 trillion
- Indonesian National Police (Polri): Rp146.05 trillion
- Ministry of Public Works (PU): Rp118.50 trillion
- Ministry of Health (Kemenkes): Rp114 trillion
- Ministry of Religious Affairs (Kemenag): Rp88.89 trillion
- Ministry of Social Affairs (Kemensos): Rp84.44 trillion
- Ministry of Higher Education, Science, and Technology: Rp61.87 trillion
- Ministry of Primary and Secondary Education: Rp56.68 trillion
- Ministry of Finance (Kemenkeu): Rp52.01 trillion
Journalists Muh. Aidil in South Sulawesi and Kamal in Central Java contributed to this report.
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Summary
The Indonesian rupiah has plunged to a record low of Rp17,600 against the US dollar, leading to predictions of significant price increases for daily necessities. This depreciation is particularly impactful as Indonesia’s economy heavily relies on imported raw materials (70%), capital goods (20%), and consumer goods (9%), all transacted in US dollars. Consequently, rising import costs compel domestic manufacturers to increase prices or reduce product portions, directly elevating the cost of living. Small businesses, like tofu and tempeh makers, are already reducing product sizes due to soaring raw material prices and diminished consumer purchasing power.
The rupiah’s persistent weakness is driven by external factors, such as geopolitical conflicts causing capital outflow, and domestic concerns regarding government fiscal health and policy uncertainties. Bank Indonesia has introduced a seven-pronged strategy to stabilize the currency, while the government plans food subsidies to alleviate cost burdens. Businesses are trying to absorb increased costs through innovation and subtle product reductions. However, a prolonged depreciation risks broad price increases, reduced public purchasing power, and potential economic slowdown or a debt crisis for the nation.