ASIATODAY.ID, JAKARTA — Indonesia is facing mounting economic pressure as the rupiah has fallen to a record low of IDR18,000 per U.S. dollar, while the Organisation for Economic Co-operation and Development (OECD) projects the country’s economic growth will lag behind regional rival Vietnam in 2026.
The twin developments have raised concerns about Southeast Asia’s largest economy as global geopolitical tensions, rising energy prices, and weakening investor sentiment weigh on both the currency and growth outlook.
According to the OECD Economic Outlook 2026, Indonesia’s economy is expected to grow by 4.7 percent in 2026, significantly below Vietnam’s projected 6.5 percent expansion. Vietnam is forecast to remain ASEAN’s fastest-growing economy, supported by strong domestic consumption, robust public investment, and resilient technology exports.
Indonesia, meanwhile, is expected to face headwinds from higher global energy prices, tighter financial conditions, and lingering policy uncertainty.
“Real GDP is projected to grow by 4.7 percent in 2026 and 5.0 percent in 2027. Higher global energy prices, increased borrowing costs following recent monetary tightening, and elevated policy uncertainty are expected to weigh on private consumption and investment,” the OECD said in its report.
The weaker growth outlook comes as Indonesia’s currency faces unprecedented pressure. Bank Indonesia (BI) attributed the rupiah’s sharp depreciation to escalating tensions between the United States and Iran, which have fueled concerns over global energy supplies and increased volatility across financial markets.
Senior Deputy Governor Destry Damayanti said renewed conflict in the Middle East has undermined hopes for regional stability and triggered capital outflows from emerging markets.
“The exchange rate remains under pressure due to the re-escalation of geopolitical tensions in the Middle East, which has hindered prospects for peace,” Destry said on Thursday.
Beyond external factors, BI noted that strong domestic demand for foreign currency has also contributed to the rupiah’s decline. Corporate dividend repatriation and external debt repayments have boosted demand for U.S. dollars, adding further strain on the local currency.
To contain volatility, the central bank has intensified market intervention through offshore Non-Deliverable Forward (NDF) transactions, domestic spot and Domestic Non-Deliverable Forward (DNDF) operations, and purchases of government bonds in the secondary market.
“Bank Indonesia will continue to be present in the market and strengthen intervention measures to ensure orderly market mechanisms and maintain exchange-rate stability in line with economic fundamentals,” Destry said.
The central bank is also accelerating efforts to reduce reliance on the U.S. dollar through Local Currency Transaction (LCT) arrangements with several trading partners, including China, Japan, Malaysia, Thailand, South Korea, and the United Arab Emirates.
BI reported that LCT transactions reached approximately $22.7 billion in April 2026, nearly matching the full-year total of $25.7 billion recorded in 2025.
Despite the currency turbulence, Indonesia’s foreign exchange reserves remain relatively strong at $146.2 billion as of the end of April 2026, providing a buffer against external shocks.
Across Southeast Asia, Malaysia is projected to grow by 4.2 percent in 2026, while the Philippines is expected to expand by 3.2 percent. Thailand is forecast to record the region’s weakest growth at just 1.7 percent amid the economic fallout from ongoing Middle East tensions.
The OECD’s latest forecast underscores a growing challenge for Indonesia: maintaining macroeconomic stability while preserving its competitiveness against rapidly expanding regional peers.
As Vietnam continues to attract investment and strengthen its position as ASEAN’s growth engine, Indonesia faces increasing pressure to stabilize its currency and accelerate economic reforms to avoid falling further behind. (AT Network)
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