How a Weaker Rupiah Affects Rural Society

The rupiah has continued to weaken, setting new all-time lows. It broke through Rp17,721 per US dollar based on trading data from Tuesday, May 19, 2026. At the same time, the Jakarta Composite Index (IHSG) was dragged down to the 6,500 range, with the majority of stocks sitting in the red.

"As long as Purbaya can keep smiling, there is no need to worry. No matter how many thousand rupiah to the dollar, villages do not use dollars," said Indonesia's 8th President, as quoted by Tempo on Tuesday (19/5/2026).

Prabowo's remarks about the dollar immediately triggered public sentiment. Many felt the government was being insensitive to the real impact of the rupiah's weakening on everyday life.

Professor at the Faculty of Economics and Business (FEB), Universitas Muhammadiyah Surakarta (UMS), Prof. Dr. Anton Agus Setyawan, S.E., M.Si., saw the current situation not as a sudden shock but as the continuation of a long-running trend. In his view, the rupiah's decline against the US dollar has actually been under way for some time.

"There was already a downward trend beforehand. During President Jokowi's administration it was already at the Rp15,000 to Rp16,000 range. Then up to recently under President Prabowo it has reached the Rp17,000 range. The worsening of the exchange rate is actually driven by global sentiment that has been building of late," Anton said when met in his office on Thursday (21/5/2026).

The situation drew even more public discussion after President Prabowo Subianto's remarks about the dollar went viral on social media. Tempo reported that during Prabowo's speech at the launch of the Merah Putih Village Cooperative outlet in Nganjuk, East Java, on Saturday May 16, 2026, he asked rural communities not to worry too much about the weakening rupiah, suggesting that a stronger dollar has more impact on those who frequently travel abroad.

The rupiah's continued weakening is driven by a combination of global and domestic factors hitting at the same time. Anton explained that from the external side, pressure on the rupiah has been triggered by an increasingly tense global geopolitical situation.

The conflict involving the United States and Israel against Iran, including threats to close the Strait of Hormuz, has disrupted global logistics routes and pushed up world crude oil prices. These conditions have weighed on the economies of many developing countries, Indonesia included.

At the same time, capital outflows from Indonesia's financial markets have also increased. Global investors have chosen to move their assets into US dollar-based instruments seen as safer amid global uncertainty.

Anton referenced a warning from Morgan Stanley Capital International (MSCI) regarding the governance of Indonesia's stock market, which has been assessed as not yet optimal. It is no surprise that investor confidence in Indonesia's financial markets has been eroding.

"The domestic stock market is not yet healthy enough due to speculative practices and asymmetric information. Global investors will naturally see Indonesia as less promising for investment for now. They prefer to hold dollar assets," Anton said.

Anton also noted that markets view the government's economic policies as inconsistent. While programs such as the MBG and the Merah Putih Village Cooperative are considered positive steps for reducing inequality and creating jobs, markets are doubtful about the government's fiscal capacity to sustain them over the long term.

The biggest concern arises from the government's need to maintain fuel subsidies in the face of rising global oil prices. If subsidies are kept in place, the state budget deficit risks widening further.

But if subsidies are removed and fuel prices are raised, the impact could be felt immediately in inflation and public purchasing power.

"What is somewhat surprising is the 21 percent growth in government spending. That really stands out. It comes from the MBG and Merah Putih Cooperative spending. Under normal conditions that would be fine. In the second, third, and fourth quarters, government spending might hold at this level, but after that it will inevitably fall because our fiscal space is tight. We simply do not have the money for this," Anton explained.

Inflationary pressure is the primary concern, as rising fuel prices will push up transportation and distribution costs. The prices of basic necessities could follow suit, while public purchasing power weakens.

If this situation continues, national economic growth could also slow. Anton described this as a chain reaction in which exchange rate weakness, inflation, and public consumption are all interconnected.

"If subsidies are removed and fuel prices rise, the impact will inevitably feed into inflation. When purchasing power falls, economic activity slows down with it. That is what markets are reading," he explained.

This reality sits poorly with Prabowo's remarks suggesting that rural communities need not panic over the weakening rupiah because they do not use dollars. Anton argued that this view does not hold up against the current structure of Indonesia's economy.

The effects of a weaker rupiah against the dollar are not felt only by large businesses or people who travel abroad. The impact ripples all the way to rural communities precisely because Indonesia's industrial structure remains heavily dependent on imports.

Anton pointed to livestock feed as one example, noting that it still relies on imported corn, while tofu and tempeh production depends on imported soybeans. Electronics, smartphones, and automotive products also still carry a significant import component.

"Many of our industries are still import-dependent. So the weakening rupiah does reach rural communities through rising goods prices," he said, setting the record straight.

An investigative report by Detik found that beef trader Fahmi at Pasar Senen said meat prices have risen because most cattle for slaughter still depend on imports from Australia, causing prices at abattoirs to spike. Local beef now costs around Rp150,000 per kilogram, up from Rp130,000, while frozen imported beef has risen to Rp120,000 to Rp130,000 per kilogram.

Meanwhile, based on the latest data from the Central Statistics Agency (BPS) and the Ministry of Trade, around 85 percent of national soybean needs are still met through imports, primarily from the United States and Brazil. These imported soybeans are used as the raw material for tofu and tempeh consumed by virtually all segments of society, including rural communities.

The weakening rupiah is hitting the middle class particularly hard. They are facing rising living costs at a time when the employment structure is increasingly shifting from formal to informal work.

"Many workers who previously held formal jobs with social security benefits are now being pushed into informal work that offers no certainty about their future," Anton said.

Concerns about what happens if the rupiah continues to weaken are widespread. But Anton stressed that Indonesia's current situation can still be navigated through several approaches.

First, Anton argued that the government needs to improve its economic policy communication so that markets see a clear and consistent direction. In his view, there is still an opportunity for investors to see Indonesia's potential, but it requires convincing them that the government can maintain fiscal and economic stability in a measured way.

Second, Bank Indonesia (BI) needs to play a more active role in maintaining exchange rate stability. The central bank needs to more actively manage foreign exchange reserves and maintain dollar liquidity within the country.

"BI holds foreign exchange reserves, even though our reserves are thinning right now. They can intervene in the market by implementing a policy that requires exporters receiving dollars to keep those dollars within Indonesia's banking system. That does not directly affect the exchange rate, but at the very least it keeps liquidity safe," Anton concluded.

Writer: Genis Dwi Gustati

Translator: Farizal Luqman Majid

Editor: Al Habiib Josy Asheva