JANUARY 16 — Hand-wringing over a softer currency often accompanies headlines about fiscal flexibility. 

In Indonesia, the two have recently been conflated—suggesting that a weakening rupiah somehow transforms a manageable fiscal adjustment into a looming crisis. This is a category error. 

Even if fiscal spending reaches 3.5 percent of the annual budget, as projected by Citibank, it does not mean that Indonesia is losing its financial prudence. 2025 was a year when the Sumatran floods hit 3 provinces in Indonesia; out of a total of 38. 

The central government has to spend more than USD 61 Billion by the seventh week of the natural disaster that began on November 25 2025. 

Indonesia has to spend more in order to rebuild this infrastructure and it did and is still doing according to the Minister of Home Affairs General Tito Karnavian.

President Prabowo Subianto has to do what needs to be done and he did it. 

With more spending on the way without which the three provinces in West, Central and North Sumatera risk a downward economic spiral ; not excluding Aceh.

Thus, there is nothing to fear, even as the currency eases, provided fundamentals and policy coherence remain intact.

First, currency weakness is not synonymous with macroeconomic distress. 

Exchange rates move for many reasons that have little to do with domestic mismanagement—global dollar strength, shifting risk appetite, higher U.S. yields, and portfolio rebalancing among emerging markets chief among them. 

In such environments, currencies across the Global South often soften together. Treating Indonesia’s rupiah as an outlier mistake ignores the global cycle.

Second, a modestly weaker rupiah can be economically absorptive, not destructive. 

It supports export competitiveness, encourages tourism receipts, and helps local producers substitute imports—especially when depreciation is gradual rather than disorderly.

Indonesia’s export base and diversified demand provide buffers that blunt pass-through risks, particularly when inflation expectations are anchored.

Third, the policy mix matters more than the level of the exchange rate. 

Indonesia’s macro framework rests on three pillars: prudent fiscal management, credible monetary policy, and active—but measured—market stabilisation. 

Currency volatility is addressed through liquidity management, communication, and targeted intervention to smooth excess swings, not to defend an arbitrary level. This is orthodoxy, not improvisation.

Fourth, the link between a temporary fiscal overshoot and currency stress is often overstated. Markets distinguish between counter-cyclical support and chronic indiscipline. 

A one-off deviation aimed at sustaining growth, disaster response, or infrastructure does not invalidate debt sustainability—especially when debt levels are moderate and the medium-term path is credible. Investors price trajectories and institutions, not headlines.

Fifth, development economics cautions against pro-cyclical tightening in the face of currency softness. 

Slamming the brakes to appease exchange-rate anxieties can weaken growth, erode revenues, and ultimately worsen fiscal and external balances. 

The cure becomes the disease. 

Stability comes from supporting demand and productivity while guarding inflation—not from ritual austerity.

Sixth, political economy cannot be ignored. Social cohesion and growth legitimacy underpin market confidence over time. 

Governments that maintain employment, protect purchasing power, and invest in resilience earn credibility dividends. 

Currency markets are forward-looking; they reward coherent governance that sustains growth capacity, not performative restraint.

The real risk, therefore, is misdiagnosis. 

A weakening rupiah is a signal to manage volatility, communicate clearly, and keep the policy mix aligned—not a verdict on fiscal failure. 

Indonesia has navigated such cycles before, preserving stability by prioritising fundamentals over fetishising thresholds.

In short, currency movements are weather, not climate. Indonesia’s climate—its institutions, growth potential, and policy pragmatism—remains sound. 

With transparency, counter-cyclical sense, and a steady hand, there is indeed nothing to fear, even as the rupiah adjusts to a changing global tide.

* Phar Kim Beng is professor of Asean Studies and director of the Institute of International and Asean Studies, International Islamic University of Malaysia.

** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.