Since the rupiah was subjected to the laws of supply and demand (free floating exchange rate) on August 14, 1997, a challenging question has emerged. Why and how is it possible that money, which is not merely a medium of exchange, is subject to the laws of the free market?
At that time, private foreign debt in US dollars was indeed very large. Speculators in Singapore played with the rupiah in significant amounts. The currency crises in Thailand, the baht, and the South Korean won spread, following the geopolitically academic policy of Samuel P. Huntington’s “clash of civilizations.”
Meanwhile, Indonesia’s banking system was weak in terms of oversight. The maturity of payable obligations did not match liquidity adequacy. Bank owners, who were often small-scale traders, also became speculators.
They took loan facilities from Bank Indonesia, then bought dollars and placed them in tax-free zones. Thus, a monetary crisis occurred and escalated into a multidimensional crisis. In various discussion and interview opportunities, I indicated that this multidimensional crisis involved social distrust, social disorder, and social disobedience.
Now, referring to the current fall of the rupiah, many circles, including artificial intelligence, compare it to the conditions of 1997/1998. In the book “Bangsa Terbelah” (Jakarta, Feb. 2019), the indication of a multidimensional crisis is measured by 17 variables across three areas.
The three areas in question are: first, monetary and fiscal; second, banking and the real sector; and third, political conditions. These three areas provide clues about the country’s level of vulnerability. According to the World Risk Index 2025, Indonesia’s vulnerability score is 39.8, ranking third among the highest-risk countries.
But if we take the perspective of the exchange rate decline within structural, fundamental, and functional references, we may use our own “lens” to measure and weigh our conditions and position.
Why? Because it is very possible that the external “clothes” or “lens” used to measure and weigh these factors are irrelevant and insignificant according to the values and spirit of our shared life.
Specifically for the indicator of the rupiah’s decline from a functional perspective, I have conveyed this in various forums since 2023. The title is “Seven Indicators of Economic Paralysis.” Reluctantly, the financial authorities admit that the current financial condition is in a “survival mode” phase.
In the world of health, this means we are in a Special Care Unit, a step above the Emergency Room. All medical capabilities are mobilized to address the causes of the disease. For example, efforts to restore the function of the heart, lungs, and kidneys so they return to normal operation.
In the economy, this is equivalent to trying to get banks to distribute credit and not buy SBN or SBRI. Bureaucratic and law enforcement apparatus reforms are also seriously undertaken so that the business climate runs healthily and business breathing is not constricted by inflationary turmoil.
People’s purchasing power is also improved through effective and efficient fiscal spending allocation. But what can be done? The pressure from imports for energy and raw materials is so high that it drives cost-push inflation.
Capital power is concentrated in business oligarchs, premature deindustrialization cannot be prevented, and energy prices fluctuate due to geopolitical situations. From this condition, fiscal and monetary authorities have very limited policy space. Their authority is fenced in by systems, regulations, and standardization.
From a structural perspective, foreign debt, import dependency, domestic interest rates controlled by the US central bank, the Federal Reserve, and the low confidence of domestic and foreign corporations operating in Indonesia in the rupiah make the rupiah’s strength dependent on external conditions.
Yet, Indonesia has good natural resources and markets. Thus, downstreaming, local currency settlement (use of currency free from the US dollar and SWIFT Code), and joining BRICS actually show that the rupiah is subject to a fantasy economy, a virtual economy.
The fantasy or virtual economy is because Indonesia remains obediently submissive to the position of the US dollar. Monetary and fiscal authorities must know that de-dollarization is happening in the world. Since the Nixon Shock on August 15, 1971, the US dollar has indeed been powerful in various global economic activities along with its payment system, the SWIFT Code.
In fact, since then, various critical structuralist circles have examined why the world follows
