Sumber: Istimewa
BANK Indonesia (BI) views the rupiah exchange rate as being undervalued compared to Indonesia’s economic fundamentals. This was the statement of BI Governor, Perry Warjiyo, during the press conference following the Board of Governors Meeting (RDG) at the end of last month. Who believes the rupiah is undervalued?
The rupiah is currently hovering at around Rp16,880 per US dollar (US$1) – weakening 0.56% in just a matter of weeks. What does “undervalued” mean in BI’s dictionary? The rupiah is said to be “on sale” – at a massive discount – because fundamentally it should be stronger. Inflation is low, yields are attractive, and economic growth is improving. So why has the rupiah “plunged”? According to the BI Governor, all of this is due to “global uncertainty,” which has raised the risk premium – a convenient scapegoat that can never defend itself.
The question is simple: if the fundamentals are so solid, why has the US$1.6 billion in capital inflows failed to lift the rupiah from its grave? Shouldn’t capital inflows, in theory, drive appreciation? This is not merely a technical failure. It is an empirical contradiction that silences conventional economic theory.
It may be that the “undervalued” statement is not purely scientific. It is tactical and tends to be political. It is a shield to cover Indonesia’s structural economic fragility. According to records from the Infobank Institute, there are at least three key issues.
First, talking about fundamentals without discussing the production structure is intellectual nonsense. Indonesia’s economic fundamentals have never truly changed. Take a look. Indonesia still exports raw materials, imports finished goods, and prays for commodity prices to rise. When corporate demand for foreign exchange increases, it reflects an industrial sector acutely dependent on imports. This is not about being undervalued. This is about de-industrialization that we have allowed to drag on.
Second, this is about institutional credibility. Amid news of the appointment of the president’s nephew (Thomas Djiwandono) as BI deputy governor, the market has already signaled distrust. Not because the individual lacks capability, but because the precedent is dangerous. When central bank independence is “eroded,” the entire monetary policy apparatus loses credibility. And believe this: once credibility is gone, no matter how aggressive the intervention, it will not be able to lift the rupiah from its slump.
Third, fragile fiscal cash flow conditions. The swelling state budget deficit to 2.92% is a poor reflection of foreign confidence. Moreover, the expenditure structure of the state budget is considered questionable, such as the Free Nutritious Meal (MBG) program costing trillion of rupiah. Meanwhile, debt and interest payments relative to state revenue continue climbing to 22%–23%.
According to Infobank’s notes, BI appears “proud” of its interventions in the NDF and DNDF markets. Foreign exchange reserves of US$154.6 billion are cited as powerful ammunition. Indeed, reserves are large in nominal terms, equivalent to 6.3 months of imports – adequate, but not extraordinary. Will they be exhausted to defend a level that was wrong from the start?
Take note. Recall the experience of 1997–1998. At that time, BI was also aggressively intervening, burning foreign exchange reserves to defend the rupiah. The result? BI ran out of ammunition, and the rupiah collapsed even further. History teaches that fighting market forces with intervention, without fundamental repair, is like bailing water from a leaking ship.
BI indeed has the mandate to maintain rupiah stability. But stability does not mean defying gravity. There are times when depreciation is an honest mirror that must be faced, not a blurred glass that is continuously polished.
The undervalued statement is essentially a misdiagnosis because it questions the symptoms, not the disease.
If the rupiah is truly undervalued, then the solution is not exhausting market intervention that drains foreign exchange reserves. Nor is it seducing foreign investors with enticing yields that merely create new dependencies. The solution is an industrial revolution – building the capability to produce the goods and services we currently import. The solution is political discipline – safeguarding institutions from family and group interests. Clearly, that is not BI’s task alone.
The rupiah at Rp16,880 may indeed be undervalued in econometric calculations. But politically, it is a full reflection of Indonesia’s half-hearted development. And no market intervention can beautify an ugly reflection.
So what must be done is to fix the problems at home first. Stop constantly blaming unpredictable global conditions. The government must immediately clarify its fiscal policy. BI must prove its independence. All of this is necessary to restore policy credibility.
Without such improvements, the rupiah will continue to “groan” and tend to “burn.” Rupiah, oh rupiah. What an unfortunate fate.
The rupiah is currently hovering at around Rp16,880 per US dollar (US$1) – weakening 0.56% in just a matter of weeks. What does “undervalued” mean in BI’s dictionary? The rupiah is said to be “on sale” – at a massive discount – because fundamentally it should be stronger. Inflation is low, yields are attractive, and economic growth is improving. So why has the rupiah “plunged”? According to the BI Governor, all of this is due to “global uncertainty,” which has raised the risk premium – a convenient scapegoat that can never defend itself.
