Indonesian Firms Steadfast Amid Rupiah Weakness: A New Era of Resilience?
3min read The Indonesian rupiah has long been a barometer of the country’s economic health, but its recent decline has not triggered the panic seen in past crises. According to S&P Global Ratings, Indonesian firms have built unprecedented resilience to currency volatility, positioning them better to weather rupiah weakness—even as challenges persist in key sectors.
A Shift in Financial Fortunes
S&P attributes this strengthened resilience to a combination of deleveraging, domestic financing shifts, and the gradual pace of currency depreciation. After peaking during the pandemic, corporate financial leverage has declined significantly. Companies have refinanced debt in local currency as domestic interest rates fell, reducing exposure to foreign exchange risks. This trend is underscored by a surge in domestic bond issuances: local bond issuance hit 143 trillion rupiah ($8.6 billion) in 2024, a 60% increase from 2020 levels. Meanwhile, dollar-denominated bond issuances plummeted to $2.3 billion in 2023—nearly a third of their pre-pandemic average.
This structural shift has insulated firms from abrupt shocks. Even a 5% depreciation of the rupiah over the next 18 months—S&P’s baseline scenario—would not destabilize companies as it did during the 1997 Asian financial crisis. Gradual depreciation allows businesses time to adjust pricing strategies, renegotiate contracts, and pass costs to consumers.
Vulnerabilities Linger in Key Sectors
Not all sectors share this optimism. Real estate, airlines, and energy-intensive industries remain exposed due to their reliance on imported inputs or dollar-denominated debt. For example, airline companies, which depend on imported jet fuel and foreign aircraft financing, face margin pressures as fuel costs rise with a weaker rupiah. Similarly, real estate developers often use USD loans to finance projects involving imported materials, leaving them vulnerable to sudden currency swings.
S&P highlights that firms in these sectors must rely on hedging strategies—such as forward contracts or options—to mitigate risks. Yet, not all have adopted these tools consistently. Companies with upcoming USD debt maturities, particularly in 2025–2026, face heightened pressure unless they can refinance or hedge effectively.
Macroeconomic Crosswinds Ahead
Even as corporate resilience grows, external and domestic risks loom. Indonesia’s twin deficits—a current account deficit of 2.5% of GDP and a fiscal deficit projected to widen to 4.5% in 2025—could amplify currency pressures. Geopolitical risks, such as Middle East tensions or shifts in U.S. trade policy, add uncertainty.
The Federal Reserve’s stance also matters: if U.S. rates remain high, capital flight from emerging markets like Indonesia could weaken the rupiah further. S&P notes that Bank Indonesia’s interventions—such as maintaining a 6.25% policy rate and forex market operations—have stabilized the currency, but they may lack firepower if global conditions deteriorate.
A Cautiously Optimistic Outlook
S&P’s analysis paints a nuanced picture. While Indonesian firms are better prepared than ever to handle currency volatility, their success hinges on fiscal discipline, domestic liquidity, and external shock avoidance. The government’s plan to raise debt-to-GDP to 50% by 2029—up from 40% in 2023—must be executed without spooking markets.
The data underscores progress:
- Corporate foreign currency debt as a share of total debt has fallen to 25% from 40% in 2019.
- Currency hedging adoption among USD borrowers has risen to 60%, up from 40% in 2020.
- Indonesia’s BBB (stable) credit rating from S&P and Baa2 (stable) from Moody’s reflects improved macro stability.
However, risks remain. A sudden spike in global commodity prices or a sharp rupiah decline could test even the most prepared firms. Sectors like energy and construction—already grappling with high import costs—would face the brunt of such shocks.
Conclusion: Navigating a Tightrope
Indonesian firms are no longer the fragile entities they were during past crises. Their reduced reliance on foreign debt, proactive hedging, and access to domestic capital markets have created a buffer against rupiah weakness. Yet investors must remain vigilant: the twin deficits, geopolitical risks, and sector-specific vulnerabilities could still disrupt progress.
For now, the data suggests a cautiously optimistic path. The Jakarta Composite Index has risen 12% year-to-date amid stable inflation and gradual monetary easing. But as S&P warns, “the test comes not in calm waters, but in storms.” Investors should favor firms with strong liquidity, minimal USD debt exposure, and hedging strategies—while keeping a close eye on global rate trends and fiscal policy in Jakarta.
In this new era, resilience is not invincibility. It is a foundation to build on, but one that demands constant adaptation.
