Indonesia says economic pressures remain manageable despite rupiah slump

JAKARTA, June 11 — External and domestic pressures on Indonesia’s economy were “manageable”, the country’s deputy finance minister said Thursday, despite a rout of the rupiah that has forced the central bank to hike interest rates.

Juda Agung told AFP the currency was undervalued and the country’s economic fundamentals remained strong despite evidence of waning investor confidence.

“There are some signs of impact, but I think it’s quite manageable,” Juda said of the rupiah’s slide to a record of more than 18,000 per dollar Monday, before recovering after the central bank unveiled a surprise rate increase.

Every one per cent of rupiah depreciation — it has lost about eight per cent this year — “only puts additional pressure of 0.07 per cent on inflation” and adds about 800 billion rupiah (RM183 million) to the budget deficit, said Juda.

“Inflation now is about 3.0 per cent... which is within the range of the central bank target of 2.5 per cent, plus or minus 1.0 per cent,” he added.

The deficit, he said, “is still quite manageable”.

The central bank’s 25 basis point hike this week followed a 50-point lift last month, and another increase is expected at its policy meeting next week.

Critics have looked with concern at the government’s response to mounting economic pressures sparked by surging crude prices that have been caused by the Middle East war.

Indonesia is the world’s fourth most populous nation and a net oil importer.

The rupiah has been among Asia’s worst performers in 2026 and Indonesia’s stock market has also taken a hefty hit, shedding more than 30 per cent since the turn of the year.

But Juda said the government remained firmly committed to its target of 8.0 per cent GDP growth by 2029, even though this entails high public spending at a time of dwindling resources.

He added that a costly fuel subsidy and free school meal programme would be maintained, though the scheme has been significantly trimmed.

The economy expanded 5.6 per cent in the first quarter of 2026, but economists expressed doubts about the accuracy of the figure.

Juda also said he was not overly concerned about Indonesia’s narrowing trade surplus, which tanked to US$89 million in April from US$3.3 billion the month before.

More expensive oil imports were mostly to blame, he said, and will drop again after the war.

Asked about criticism of the government’s recent decision to tighten export controls, Juda insisted the goal was to reduce losses from graft, which is estimated at US$900 billion in 20 years.

“We are not closing our economy,” he added.

Juda also defended a recent move to tighten parliamentary oversight over the central bank, insisting the institution’s independence was “non-negotiable”. — AFP