Rupiah Undervalued, Yet Still Under Pressure

The Indonesian Rupiah (IDR) remains under pressure, hovering above the 17,200 mark against the US Dollar, a persistent trend that has observers questioning the official narrative. For years, Indonesian authorities, including the government and Bank Indonesia (BI), have consistently stated that the Rupiah is "undervalued" or below its fundamental value. This assertion, however, has become a recurring refrain, repeated during global turmoil, pandemics, and even periods of market stability, leading many, like currency observer Ibrahim Assuaibi, to question its relevance.

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In conditions where the rupiah is weakening, the Government and BI always assume that the rupiah is below its fair value or undervalued. This narrative continues to be repeated in various situations, both during global turmoil, pandemics, and when market conditions are relatively stable. Even when the exchange rate touched the range of Rp 17,300 per US dollar, similar statements re-emerged.

Assuaibi points to the historical data, noting that since 2014, the Rupiah has depreciated from around 12,000 to the current 17,000s against the dollar. This long-term trend directly contradicts the notion of being fundamentally undervalued. While Indonesia boasts relatively strong macroeconomic indicators such as controlled inflation and stable economic growth, deeper structural issues persist. These include foreign exchange reserves partially supported by debt, foreign investment inflows followed by significant outflows of dividends and interest, and signs of premature deindustrialization. The economy's reliance on short-term foreign capital also leaves the exchange rate vulnerable to external shocks.

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Historically, since 2014, the rupiah has been in the range of Rp 12,000 per US dollar, to weakening to the level of Rp 17,000 per US dollar in recent years. This condition should encourage a deeper evaluation of the understanding of the fair value of the rupiah, rather than continuing to repeat the same narrative.

The repeated use of the "undervalued" narrative, Assuaibi argues, has shifted from economic analysis to a communication tool aimed at managing market panic and maintaining optimism. However, this strategy risks becoming counterproductive if not accompanied by tangible improvements in economic fundamentals. Building confidence in the currency cannot solely rely on rhetoric; it requires concrete actions and demonstrable progress in the underlying economic structure. The challenge for Indonesia is to move beyond the narrative and implement reforms that foster genuine, sustainable strength in the Rupiah.

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The use of the 'undervalued rupiah' narrative has shifted from economic analysis to a communication instrument to curb market panic and maintain optimism. However, this narrative has the potential to become problematic if it continues to be repeated without being accompanied by real fundamental improvements. Strengthening confidence in the currency cannot be built solely through narrative. This step must be based on real fundamental improvements in the economy.