Rupiah Weakening Trend Mirrors 1997 Baht Crisis Start, Economists Warn

Indonesian economists are sounding the alarm over the rupiah's persistent weakening, drawing parallels to the "Baht 1997" crisis that preceded the 1997 Asian Financial Crisis. Yanuar Rizky, an economist, highlighted the struggling Indonesian bond market alongside the rupiah's decline, noting that the government often claims the currency remains stable.

"Forex savings in banks are already in a 'rate war' as banks try to prevent customer crowding out," Yanuar explained. He observed a rise in foreign exchange interest rates, particularly for large, priority customers, since February. Bank Indonesia has responded by reducing the dollar purchase threshold for individuals from 100,000 USD per person per month to 50,000 USD in April 2026, with a further reduction to 25,000 USD planned for June 2026.

Yanuar further detailed that data from Bright Institute shows a rise in Indonesian residents transferring funds abroad. In the first quarter of 2026, while foreign capital inflow reached $4.2 million USD, capital outflow by Indonesian residents amounted to $9.14 million USD, indicating a net outflow of approximately $4.93 million USD. This outflow mirrors the "Baht 1997" scenario, where export earnings were withdrawn as confidence in the baht eroded.

The "Baht 1997" crisis began in Thailand, which had experienced strong economic growth and high investor confidence in the early 1990s. The government maintained a relatively fixed exchange rate against the US dollar, encouraging borrowing in dollars by Thai banks and companies. This fueled a property and stock market boom, but also widened the current account deficit due to high imports and investment. By mid-1996 to 1997, Thailand's exports slowed, the property sector faltered, private foreign debt became substantial, and many projects failed to yield adequate returns, leading to investor doubts.