The rupiah falls past 18,000, its weakest ever

Indonesia's currency, the rupiah, has fallen to its weakest level ever against the US dollar. On Thursday, 4 June, it passed 18,028 rupiah to the dollar, breaking the 18,000 line for the first time and making it weaker than during the Asian financial crisis of 1997 and 1998. As Al Jazeera reports, the drop has deep causes, and it reaches ordinary people through the price of imported goods.

The main trigger is energy. A war involving the United States, Israel, and Iran pushed oil prices up, and Indonesia buys more oil than it sells, so it needs a lot of dollars to pay for fuel. At the same time, the country's trade surplus, the gap between what it earns from exports and pays for imports, nearly vanished: it fell to just US$89 million in April from US$3.3 billion the month before. That dried up the supply of dollars coming in. On top of this, the United States has proposed new tariffs, or import taxes, of 10 to 12.5 percent on goods from about 60 countries, including Indonesia.

To defend the rupiah, Bank Indonesia raised its main interest rate to 5.25 percent, and it now asks for documents when someone buys more than US$25,000 a month. Josua Pardede, chief economist at Permata Bank, put it plainly: "Dollar supply from goods trade is dwindling, while dollar needs for energy imports remain significant." Since President Prabowo took office, the rupiah has lost more than 14 percent, and the Jakarta stock market is down about 30 percent this year, the worst of more than 90 markets tracked by Bloomberg.

Why it matters

A weaker rupiah makes imported things more expensive, from fuel and medicine to phones and some foods, so your money buys less even if your pay stays the same. It also raises costs for companies that borrow or buy in dollars, which can mean higher prices or fewer jobs. Watch Bank Indonesia's next moves and the price of fuel, because they will show whether this pressure is easing or getting worse.