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We are not just dealing with a weaker rupiah. We are watching a feedback loop that is getting harder to break.
Start with refinancing. Around Rp833.96T of debt matures in 2026. This has to be rolled over in a risk-off environment, with the rupiah already under pressure. To clear the market, the government must offer higher yields. That pushes the interest bill, already about Rp599T per year or roughly 22% of tax revenue, even higher.
From there the dynamics compound. Higher interest costs compress fiscal space. Productive spending gets crowded out. Growth slows. And once growth slows, the core justification for continued fiscal expansion weakens. Investors reassess, and capital outflows accelerate.
Now add oil. A rising oil price worsens the picture for a net importer. Import bills increase, the current account deteriorates, and inflation pressures build. If fuel subsidies are maintained, the fiscal burden rises further. If prices are passed through, household purchasing power weakens. Either path tightens financial conditions.
The risk is not any single variable. It is the alignment of all variables in the same direction. A weaker rupiah inflates the burden of foreign currency debt. Higher oil prices widen external and fiscal deficits. A larger debt burden tightens fiscal flexibility. Limited fiscal room reduces the ability to defend the currency. That, in turn, reinforces pressure on the rupiah.
All of this is happening under the constraint of the policy trilemma. With open capital flows, markets will price fiscal credibility in real time. Any hesitation or inconsistency is immediately reflected in yields and the currency.
Foreign exchange reserves provide a buffer, but not an unlimited one in a sustained outflow scenario.
There is no crisis today. But the preconditions are in place. Without a credible shift in policy direction, today’s exchange rate risks looking benign in hindsight.
tempo.co@tempodotco
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