DEPRECIATION OF INDONESIAN RUPIAH TO US DOLLAR

AND ITS IMPACT ON THE INDONESIA'S STATE BUDGET (APBN)

Dayangku Ratu Faizha Nurwanda Sarros

Email: dayangku.faizha@gmail.com

A. INTRODUCTION

The currency exchange rate or what can be called the exchange rate is one of the
macroeconomic variables that is very important in international economic transaction
activities, such as trade and investment. (Fadhilah, 2022). A country's exchange rate is a tool
to see the stability of a country's economy. So, the higher the country's currency exchange rate
against other countries, the country has a more developed economy than other countries
(Purwanti, 2018).

Currently, the Indonesian economy, particularly in terms of macroeconomic issues, is

grappling with the depreciation of the Indonesian Rupiah against the US Dollar, reaching a
level of Rp 15,927 at the end of last October. Bank Indonesia (BI) has strengthened measures
to stabilize the Rupiah and has collaborated with the Ministry of Finance, the Financial Services
Authority (OJK), and the deposit insurance institution to mitigate the feared impact, which is
import-driven inflation. Just last month, BI even raised the interest rate by 25 basis points to
6% in order to maintain the exchange rate of the Rupiah and mitigate this import-driven
inflation (VOA Indonesia.com, 2023).

Amidst this chaos, there is a growing emergence the issue of dedollarization as a

response from the ongoing depreciation of the Indonesian Rupiah, which was initially initiated
by China to move away from the US dollar and create a new type of transaction called Local
Currency Transaction (LCT). Indonesia, as part of the Asian countries that have long been
heavily reliant on the US dollar, certainly sees this dedollarization issue as one of the solutions
for a better economy.

However, when this issue was just beginning to gain traction, strangely, the exchange
rates of the Rupiah and foreign currencies across all Asian countries moved downwards in
unison. This is considered peculiar because Asia is a global growth center with increasing
exports, particularly among fellow Asian nations. The economies of Asia are also not as dire
as the US in terms of dangerously high levels of debt. This is then interpreted as a signal from
the US to Asian countries regarding their efforts to reduce their dependence on American
"manpower" all this time (Kompas.id, 2023).

The depreciation of the Rupiah, coupled with the emerging dedollarization trend, poses
significant challenges to Indonesia's economy. Import-driven inflation is a major concern,
prompting central authorities to take measures to stabilize the currency. The potential shift
towards dedollarization could impact trade relationships, requiring careful consideration of the
consequences for the nation's economic health. The depreciation of the Indonesian Rupiah to
the US Dollar and the emergence of dedollarization as a response present complex challenges
for the nation's economy.

So, this essay delves into the interconnectedness of these macroeconomic issues,
shedding light on their implications for the national economy. As Indonesia navigates through
these challenges, policymakers must carefully weigh the options to ensure sustained economic
stability and growth.

B. RESULT AND DISCUSSION

1. Depreciation Of Indonesian Rupiah
The value of the Indonesian rupiah currency is still very dependent on the US
dollar. The United States has a dominant role in the global financial system, including
institutions such as The FED (US central bank) and the US-based World Bank. This
provides significant economic power and influence on the global economy.
According to (Wijoyo, 2016) the main factor causing the Rupiah shock was
external factors, especially the economic policies set by the American Central Bank.
For example, in 1998, when the United States was hit by a monetary crisis due to prime
mortgage, namely the failure of housing loans, which resulted in a decline in the rupiah
exchange rate and an increase in the unemployment rate in Indonesia.
US dominance in the global economy causes overlapping dependencies between
countries and becomes a problem because when all countries rely on the US dollar as
the world currency, the US economic situation becomes the top of the world economic
pyramid. So when the US experienced a monetary crisis, financial crisis, and collapse
later this would have an impact on the entire economy in the world in every country
even though only one country, namely the US, experienced deflation.
The depreciation of the value of the rupiah currency continued to decline
throughout July-October 2023, until yesterday on October 26 2023 reaching a level of
IDR 15,927. It is feared that this weakening will continue until it reaches IDR 16,000.
The first impact felt will reach the community first, especially in the process of buying
and selling transactions in the market which causes price instability, especially for
imported goods such as meat, wheat and others.
According to Andry Asmoro, Chief Economist of Bank Mandiri as reviewed via
(Bisnis.com, 2023) that the Fed is holding the fed funds rate (FFR) at the meeting 31
October-1 November 2023, but the US central bank is still giving a signal to raise it
again 25 basis points (bps) to 5.75% which the Fed will take if the inflation rate is not
yet provide consistent direction towards the 2% target.
He saw that the outflow of foreign funds would later affect the rupiah exchange
rate against the US dollar. He estimates that the rupiah will probably still move in the
range of Rp. 15,500-Rp. 15,900 until the Fed's board of governors (FOMC) meeting in
December.
2. Reasons of Depreciation of the Indonesian Rupiah to US Dollar
The depreciation of the Indonesian Rupiah against the US Dollar is a complex
phenomenon influenced by various factors:
a. First, the strengthening of the United States economy is the main trigger
for the weakening of the Rupiah. According to Coordinating Minister for the
Economy Airlangga Hartarto, strong economic growth in the United States
affects the movement of the Rupiah exchange rate against the US Dollar.
b. Second, uncertainty about global economic conditions, especially in the
United States, also contributed to the weakening of the Rupiah. Statements
from members of the board of governors of the US central bank, The Federal
Reserve (The Fed), could create global economic instability which would have
an impact on the Rupiah exchange rate.
c. Third, panic in financial markets triggered by statements from members
of the Fed's Board of Governors, especially regarding the possibility of
maintaining high interest rates in the long term, was another factor that
influenced the weakening of the Rupiah against the US Dollar.
d. Fourth, high interest rates. Market expectations regarding the United States'
high interest rate policy also triggered the depreciation of the Rupiah.
Anticipation of higher interest rate increases from the US central bank could
put pressure on the currencies of developing countries, including the Rupiah.
 e. Fifth, the political situation. Political conditions leading up to the 2024
General Election were also identified as one of the causes of the weakening of
the Rupiah. Director of PT Laba Forexindo Berjangka, Ibrahim Assuaibi,
highlighted that similar conditions had occurred before the 2019 elections, and
the weakening of the Rupiah exchange rate tended to be temporary.
3. Dedollarization
The US dollar is the most widely used in global trade and is the US super power as
the country with the second largest economy, the center of world financial markets and
world geopolitics. However, the dollar's king status has begun to face challenges in
recent years. Many countries choose to dedollarize or abandon the dollar for reasons of
economic stability.
Dedollarization, which refers to efforts to reduce dependence on foreign currency
and encourage the use of local currency in domestic economic transactions, has become
an important concern for the government and financial institutions in Indonesia. One of
the approaches proposed to achieve dedollarization is through Local Currency
Transactions (LCT), namely transactions carried out in local currencies.
In the midst of this chaos of weakening of the value of the rupiah currency, there is
a growing emergence of the issue of dedollarization as a response from the ongoing
depreciation of the Indonesian Rupiah, which was initially initiated by China and
Russia to move away from the US dollar. Indonesia, as part of the Asian countries that
has long been heavily reliant on the US dollar, certainly sees this dedollarization issue
as one of the solutions for a better economy.
However, when this issue was just beginning to gain traction, strangely, the
exchange rates of the Rupiah and foreign currencies across all Asian countries moved
downwards in unison. This is considered peculiar because Asia is a global growth
center with increasing exports, particularly among fellow Asian nations. The economies
of Asia are also not as dire as the US in terms of dangerously high levels of debt. This
is then interpreted as a signal from the US to Asian countries regarding their efforts to
reduce their dependence on American "manpower" all this time (Kompas.id, 2023).
4. Impacts on the Indonesia’s State Budget (APBN)
The current depreciation of the Indonesian Rupiah against the US Dollar is
expected to influence the posture of the 2023 State Budget (APBN). The depreciation
may have an impact on both the revenue and expenditure sides of the APBN.
 a. Revenue Side:
1) Non-Tax State Revenue (PNBP): The depreciation of the Rupiah is
projected to affect Non-Tax State Revenue (PNBP), especially through
increased revenue from export duties.
2) Sensitivity Analysis: It has been analyzed that for every Rp 100
depreciation of the Rupiah against the US Dollar, state revenue is expected
to increase by Rp 5.4 trillion, while state expenditure is projected to
increase by Rp 8.5 trillion.
b. Expenditure Side:
1) Increased Costs: The depreciation of the Rupiah leads to increased costs
for businesses relying on imported raw materials. This can result in higher
production costs, potentially affecting various industries.
2) Impact on Domestic Prices: For instance, this depreciation has affected
the price of meat domestically as 816 thousand tons of meat demand in
Indonesia are met through imports to fulfill domestic demand.
3) Budget Assumptions: The assumed exchange rate in the 2023 State
Budget is Rp 14,800 per US Dollar. However, the current exchange rate has
deviated significantly, around Rp 800, as the Rupiah has reached Rp 15,600
per US dollar and even briefly reached Rp 15,900 per US dollar. This
indicates the potential need for adjustments in budget planning.

C. CONCLUSION
The depreciation of the Indonesian Rupiah against the US Dollar has significant
repercussions on the State Budget (APBN). The impacts are manifested through increased
costs for businesses, higher production expenses, and import-driven inflation affecting
domestic prices, particularly for crucial commodities like meat. Furthermore, the
divergence of the current exchange rate from the assumed rate in the 2023 State Budget
signals potential adjustments in budget planning, adding complexity to fiscal management.
In the end, we still have to admit the strength of the US Dollar against the Indonesian
Rupiah, and the state of our economy is still significantly affected. If this depreciation of
the Rupiah continues, the prices of imported domestic goods in the market will further
increase, making it difficult for people to afford them. Additionally, many other economic
activities that rely on the dollar as a transaction tool will face challenges. Meanwhile, the
 prices of export commodities will decrease, leading to higher expenditures compared to
income.
In addressing these challenges, the issue of dedollarization emerges as a positive step.
However, it necessitates a gradual transition. To counter Rupiah depreciation and reinforce
its value, proactive measures are crucial. These include promoting the purchase of domestic
products over imports, discouraging the hoarding of dollars in favor of Rupiah exchange,
fostering entrepreneurship with an export-oriented approach, encouraging domestic
tourism, utilizing public transportation, and promoting domestic investments. By adopting
these strategies, Indonesia can fortify the Rupiah, mitigate the impacts on the APBN, and
foster a resilient and robust economic foundation.

D. BIBLIOGRAPHY

Artikel Jurnal:

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Sakir, A. S. A., Zainul, Z. R., & Zulkifi, Z. (2020). Faktor-faktor penyebab pelemahan
kurs rupiah terhadap dollar amerika. KINERJA, 17(2), 165-171.

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