Indonesia trades less in dollars. Its debts are still in dollars.

Indonesia has quietly changed how it pays for a lot of its trade. Under Bank Indonesia's local currency transaction scheme, an importer buying from China can settle the bill in rupiah or renminbi instead of converting through dollars first, which saves the cost of two exchanges. Seven partners are signed up, from China and Japan to Singapore, whose arrangement started on 31 August. Payments through the scheme reached the equivalent of 49.4 billion dollars in the first eight months of 2026, nearly double the whole of 2025. Governor Destry Damayanti told Reuters that about three-quarters of that was in renminbi.

Ramkishen Rajan, a professor at the Lee Kuan Yew School of Public Policy in Singapore, argues in the Lowy Institute's Interpreter that none of this touches the harder problem. Changing the currency you trade in does not change the currency your old debts must be repaid in. Private external debt, meaning money Indonesian companies borrowed from lenders abroad, came to 164.3 billion dollars owed in dollars in July, which is 84.5 per cent of the private total. A firm that earns rupiah and owes dollars loses on every repayment when the rupiah falls, and that mismatch is what sank Indonesian companies in 1997 and 1998, when the currency lost roughly 70 per cent of its value in six months.

The timing is awkward. On 16 October Jakarta's main index fell 11.6 per cent after MSCI proposed moving Indonesia out of the emerging-market group that global funds track. By 19 October the selling had spread to government bonds, pushing the 10-year yield to about 7.4 per cent, and the rupiah weakened to 18,030 per dollar, close to June's record low.

There are defences. Reserves stood at 146.3 billion dollars at the end of September, though they fell by more than 11 billion between the end of 2025 and May. A rule from 2015 requires non-bank borrowers to hold foreign-currency assets covering at least 70 per cent of foreign-currency debt falling due within three months, and the IMF called the financial system broadly resilient in January. Rajan's point is that nobody publishes the figure that would settle the argument: how many dollars companies actually need over the next six months, after their own earnings and hedges. He wants Bank Indonesia to build that estimate from reports firms already file every quarter.

Why it matters

If you work for an exporter or a property developer that borrowed abroad, the rupiah's level is now a line in your employer's cost sheet, not just a headline. Watch the quarterly external debt releases and whether Bank Indonesia starts publishing what firms owe in dollars net of what they earn, because that gap is what decides how much of the reserve pile gets spent defending the currency. The trade shift has a second edge too: paying in renminbi avoids the dollar, but it ties more of the economy to decisions made in Beijing.