By Lillian Kallman, Director, PT ACube TIC International and James Kallman, CEO, Moores Rowland Indonesia
The rupiah's slide to over Rp18,000 to the US dollar is understandably triggering anxiety across Indonesia. For many of us, the exchange rate is not an abstract macroeconomic indicator. It is deeply personal. In 2012, the rupiah traded below Rp10,000 to the dollar. Since then, the currency has lost nearly 80% its value against the greenback.
This is not yet a repeat of the 1998 Asian Financial Crisis. Indonesia's banking system is stronger, foreign reserves remain substantial, and Bank Indonesia is far more credible than it was during the collapse of the Suharto era. But dismissing public concern as irrational would be a mistake. The issue facing the country today is not simply a weakening currency. It is a broader erosion of confidence.
Currencies are ultimately built on trust. Once trust begins to weaken simultaneously across multiple sectors, economic stress can accelerate much faster than many policymakers expect. Indonesia today faces precisely that risk.
The government is responding aggressively to rupiah weakness through interest rate hikes, foreign exchange intervention and new policies designed to keep export proceeds inside the country. Through entities connected to Danantara, the new sovereign wealth fund structure, commodity exports are being centalized. Officials argue these policies are necessary to defend national interests, increase state revenue and strengthen economic sovereignty.
There is logic behind some of these measures. Indonesia has long struggled with transfer pricing, weak enforcement and resource leakage. There is understandable frustration that a country so rich in natural resources still captures too little value from them.
However, markets do not respond only to intentions. They respond to predictability.
Over the past year, the government has seized millions of hectares of plantations and revoked numerous forestry concessions. President Prabowo Subianto himself stated that the state had already taken control of more than four million hectares of oil palm plantations and suggested another four to five million hectares could be seized.
Some of these actions may well have been justified given the historical problems involving overlapping permits, unclear land classifications and politically connected licensing.
However, from the perspective of international markets, nuance often disappears. Once the government publicly revokes permits or alleges illegality, many foreign buyers and investors immediately assume the companies involved must be guilty, regardless of the underlying evidence or legal complexity.
This is particularly damaging in the country’s forestry sector, which has spent decades attempting to build international trust through sustainability certification, legality assurance systems and engagement with global environmental standards. When legally operating concessions lose permits under broad allegations without clear public evidence, the message received abroad is not one of improved governance. It is one of uncertainty.
What makes this even more concerning is the apparent contradiction between environmental rhetoric and broader economic policy direction.
The seizures have largely been presented as efforts to protect forests and restore proper land management. Yet at the same time, President Prabowo has repeatedly expressed strong support for expanding palm oil production, biodiesel programs and plantation-based economic development. The result being centralizing commodity control while simultaneously transferring large areas of seized plantations to state-linked palm oil entities.
There is a real danger that weakening long-term sustainable forestry concessions without establishing a stronger conservation framework could ultimately produce the opposite of the intended result: less forest protection, weaker landscape governance and greater pressure for conversion into palm oil or other strategic plantation projects.
Sustainable forest management depends on long-term confidence. If companies conclude that certification, restoration investment and compliance do not materially improve concession security, incentives naturally shift toward shorter-term extraction and capital minimization rather than stewardship.
That uncertainty risks becoming self-reinforcing.
Investors can tolerate high taxes and difficult regulations if the rules are clear and stable. What they fear is unpredictability. When companies begin worrying that permits, land access or commercial rights can be altered through discretionary state action, long-term investment naturally slows.
The danger is not necessarily sudden capital flight. More often, it begins quietly. Expansion projects are delayed. Wealthy Indonesians diversify abroad. Regional headquarters move to Singapore. Families move savings into dollars. Investors demand higher returns to compensate for rising perceived risk.
Economic confidence is only part of the problem, however.
Indonesia is also experiencing growing concern over the expanding role of the military in civilian sectors under President Prabowo Subianto, himself a former commander of Kopassus during the Suharto era.
Equally worrying is the prosecution of former education minister and Gojek founder Nadiem Makarim. Prosecutors are currently seeking an 18-year prison sentence in connection with Chromebook procurement decisions made during the pandemic.
Corruption must absolutely be investigated and prosecuted where genuine wrongdoing exists. Indonesia's anti-corruption efforts are essential and should remain strong. But many view the scale of the punishment being sought against Nadiem as deeply troubling. Legal experts and international observers from outlets like The New York Times have raised concerns that the case represents "legal populism" or politically motivated criminalization of standard policy decisions, noting a broader drift toward authoritarianism in Indonesia.
If reform-minded leaders and globally respected professionals begin concluding that ambitious policymaking or public service could later expose them to extraordinary criminal liability, Indonesia risks driving away exactly the kind of talent it most needs.
The result is not simply fear among politicians. It is bureaucratic paralysis. Future officials become more concerned with personal legal protection than innovation, reform or solving difficult national problems.
Indonesia today is not the New Order. The country still has competitive elections, an active civil society and a vibrant online discourse. However, democratic and institutional erosion often occurs gradually through the accumulation of smaller changes that normalize greater centralization, reduced predictability and increased fear.
Indonesia has extraordinary potential. It is one of the world's largest democracies, a major resource power and home to a young and dynamic population. But long-term prosperity depends not only on natural resources or state power. It depends on institutional trust.
The rupiah is not weakening in isolation. It is reflecting growing uncertainty about Indonesia's broader direction.
