The currency is at the lowest level in 28 years. A stock market having lost almost half its value in six months. A government that has a tendency to attack its critics rather than respond. The script being acted out in Jakarta is all too familiar and the rest of the world are already paying for a front row seat.

If you've been through Asia's last great currency crash, you'll know that the numbers on the screen were the least of their problems. It was the speed. The Thai baht dropped one Friday in July 1997. On Monday morning Kuala Lumpur was reeling. At the end of that summer, Indonesian families were standing in lines in front of the banks, the rupiah had lost two-thirds of its value, and a 30-year political system was in its twilight years. Now, 29 years later, the same, younger generation is being exposed to the same sick beat and the bad news is that a lot of it should be nothing new in Jakarta. There is much that has been signalled for almost eighteen months, in simple terms.

Even the numbers alone are worth a moment. The rupiah closed Tuesday at about 18,190 per dollar, the lowest level and in nominal terms weaker than at any time during the 1997-98 crash. The benchmark stock index has plunged over 42 per cent in 2026, making Jakarta the world's worst-performing equity market this year, bar none. After Bank Indonesia used a ton of foreign exchange reserves to defend the rupiah, the nation's foreign reserves fell to USD 144.9 billion at the end of May, the lowest level in two years. Foreigners' holdings of government bonds, which were at around 40 per cent of the float as recently as 2019, have dropped to around 13 per cent. The price of protecting against the default of Indonesian sovereign debt has been rising to levels that, using the market's own math, suggest the country may soon be downgrated to junk.

A wound inflicted upon self in the guise of nationalism.

For 10 years, Indonesia has been doing everything right according to the orthodox recipe. Inflation remained in the target range. A debt-to-GDP ratio of about 41 per cent would have been the envy of half the developed world. The rate of poverty had dropped to approximately 8.5 per cent and unemployment to below 4.8 per cent. Sri Mulyani Indrawati, a former World Bank managing director, was in the finance ministry and was, essentially, the country's quietest credit-rating guarantee. Markets trusted her. She was a trusted foreign investor. She was trusted by her rivals too.

In September 2025, she was fired. Her successor, Purbaya Yudhi Sadewa, arrived with the blistering new liquidity injection to the banking system, around USD 12 billion, in weeks, and probably the most combative disposition among bankers who spoke about the obvious risk factors. The Jakarta-based economist from Citigroup had cautioned that the deficit was preparing to surpass the 3 per cent legal limit and reach 3.5 per cent of GDP, but the finance minister replied saying the analyst was "not a real economist. So it wasn't so much about monetary policy as it was about the press release.

The larger tectonic change, however, was the subtle transformation of the central bank. In January 2025, President Prabowo Subianto appointed his nephew as a member of Bank Indonesia's (BI) Board of Governors. A proper "burden-sharing" mechanism was mooted to assist the Government with their spending proposals. The central bank had new demands placed upon it: jobs creation, growth targets, etc., which have nothing to do with monetary stability and everything to do with politics. The market noticed. The first big slide of the rupiah. Foreign investors' purchases of domestic bonds started to decline to generational lows.

Uncle Sam Wants His Money Back

How Indonesia compares with its emerging-market peers in 2026

YTD performance of Equity Market

Indonesia

−42%

Philippines

−13%

Thailand

−10%

India

+6%

Brazil

+18%

Mexico

+14%

The indicative YTD returns for mid-June 2026 are provided.

Danantara and the ghost of 1MDB

The most telling decision in this regard was the establishment of Danantara, a sovereign wealth fund by Prabowo in February 2025 that brings all state assets valued at more than USD 900 billion under one roof under his direct supervision. The president has described Danantara as a driving force that would enable Indonesia to stand "as an equal partner" before the world, during a talk in Davos in January. The advisory board was named after Ray Dalio and Jeffrey Sachs. The plan set an investment pipeline of USD 20 billion per year in renewable energy, food, downstream industry and infrastructure in support of the headline 8 per cent growth target.

It also lacked credible independent governance, which is what is now considered the loss of confidence. Danantara is responsible to the president. Its mandate has since expanded through the decree, to oversee state-enterprise restructuring and privatisation, and since 1 June 2026, a centralised single-window export system, which de facto gives it control over coal and palm oil export flows. But critics inside and outside Indonesia have started to openly mention Malaysia's 1MDB not as an insult but more like a warning. A politically directed fund of that magnitude working without independent oversight often raises the question not so much of whether but when there are problems.

Index provider MSCI was no less forthright in February, saying Indonesia's stock market posed “fundamental investability issues” due to the lack of transparency in the stock ownership and potential coordinated trading. The index reviewer in May removed 18 Indonesian stocks from its benchmark index a much larger than expected move. The head of the Jakarta stock exchange stepped down. Goldman Sachs downgraded its stance on the Indonesian equities market to underweight and also noted that the passive selling of the market alone due to the downgrade by MSCI could result in outflows of over USD 13 billion. Moody's and Fitch have already downgraded their outlooks to negative. S&P has indicated that the rating itself is not just the outlook that depends on the restoration of fiscal buffers.

It isn't a local issue, it's a global issue.

Much of all this can be read as a Jakarta story. That's the wrong way to read that. The crisis began in Thailand in 1997 and didn't end there. This spread to Indonesia, Korea, the Philippines, and finally Russia and Brazil, because as soon as global capital figures out that the institutional architecture in a region is softening up, contagion goes the speed of a trading desk. Indonesia today is at a specific tipping point: the biggest economy in Southeast Asia, the fourth-largest in the world, and a nation whose nickel, palm oil and rare earths are increasingly becoming essential to the global value chain.

This time the contagion mechanism is in colour. As the United States interest rates are higher for longer, it is attracting funds back to the dollar. Brent had surpassed critical thresholds and fuel subsidy bills had been driven up in the region by the Iran war. The Philippine peso and Indian rupee are battered; among major Asian currencies, only the Chinese yuan has been largely unchanged since the war broke out. ANZ's estimates are for the current account deficit for Indonesia to increase to 1.1 per cent of GDP in 2026, India to 1.9 per cent and the Philippines to 4 per cent. The vulnerability is regionally distributed. It turns out Indonesia is the one country providing investors with the purest excuse for getting out.

In fact, Indonesia faces a confidence crisis: the governance red flags far outweigh any valuation argument. Asia desks note this week from asset manager

The political response is what makes the moment more dangerous and not less. When asked about the depreciating rupiah, the president, addressing a crowd in East Java, said that the villagers in Indonesia do not deal in dollars and thus were not affected. That sentence will surely be remembered. The reality is the opposite of this: imported inflation affects prices of fuel, fertiliser and cooking oil first; and those are the prices that are first to reach rural households in a developing economy. That is what Bhima Yudistira of Jakarta's Center of Economic and Law Studies, among others, said this week, and it was no less on-target because it was so straightforward.

The exit is not a secret. That is the same way out that was the last time the rupiah fell and so did the political system. Restore the independence of Bank Indonesia not in press release. Expose genuine external audit for Danantara. Eliminate the 8 per cent growth rhetoric and embrace the reality of the economy's capabilities of 5 per cent growth. Cease and desist to attack foreign analysts and cease and desist to answer their numbers. All this is nothing new. It's all awkward. But the price of inaction will be paid by the same residents the government continues to claim it is safeguarding, and by markets and government outside of Jakarta's jurisdiction at least if history is any indicator. The ghosts of 1997 are not known for staying in one country. This time they will not do so.