For government employee Ryandi Febri Nurcahyo, 35, government assurances were wearing thin.
“Our officials keep saying that our economic fundamentals are strong … Are they really that strong? This rise in the dollar affects people from the lower-income level to the middle class. Maybe it does not have much impact on those at the top,” he said.
“COSTLY POPULIST PROGRAMMES”
The rupiah has tumbled more than 7 per cent this year and has been Asia’s worst-performing currency, according to Bloomberg News, as the US-Israel war on Iran sent global oil prices surging.
Permata Bank chief economist Josua Pardede said an exchange rate of 18,000 was a “psychological threshold” for market investors.
The weakening, he told AFP, was fuelled by high dollar demand caused by the surge in oil prices and a narrowing trade surplus.
Indonesia is a net oil importer and has been battered by high crude costs, yet the government has insisted on leaving heavily subsidised fuel prices unchanged.
The country’s trade surplus narrowed to just US$89 million in April, from US$3.3 billion a month before, further reducing dollar supply, Josua said.
At the same time, “dollar needs for energy imports, raw materials, dividends, foreign debt payments and seasonality needs remain significant”, he told AFP Wednesday.
The central bank hiked its lending rate by 0.5 basis points to 5.25 per cent last month – the first increase in two years – as it looked to stabilise the rupiah and keep inflation in check.
It has also tightened rules for dollar purchases, but has been unable to halt the exchange rate rout.
Teuku Riefky, a University of Indonesia economist, said the rupiah was reacting not only to the economic fallout of the Middle East war, but also “various costly populist programmes” including the government’s multi-billion dollar school feeding scheme.
There was also flagging confidence among investors in Jakarta’s ability to repay its debts.
“If this continues, the impact will be sustained inflation due to rising production and raw material costs,” Teuku told AFP.
Further fuelling investor concerns, President Prabowo Subianto last month announced commodity export controls that set markets aflutter amid concerns over “resource nationalism” in the world’s largest palm oil producer.