Value of Indonesian rupiah slips as Trump tariffs, President Prabowo’s fiscal policies hit

Holidays to Bali have become cheaper this year — and Aussie travellers have Donald Trump to thank for the boon.

Holidays to Bali are nearly 5 per cent cheaper now than they were just three months ago, as US President Donald Trump’s tariff policies trigger a slump in the value of Indonesia’s currency.

On January 1, the Aussie dollar bought roughly 10,000 rupiah, but this week it touched a high of 10,480 IDR.

That means a 4.8 per cent lift in the spending power of Australian tourists travelling across the sprawling Southeast Asian nation - including beloved hotspot Bali - given Indonesian prices have also remained stable during the three-month period.

The rupiah also hit its lowest level against the US dollar since the 1998 Asian Financial Crisis on Tuesday, tumbling 0.5 per cent to touch 16,640 IDR, close to its record low of 16,800 recorded in June 1998.

President Trump’s tariffs and their impact on Indonesia’s export-heavy economy are partly to blame for the sell-off, Lowy Institute research fellow Robert Walker told NewsWire this week.

“Trump’s tariff policies are obviously having an effect on the broader global economy and the outlook for that, as well as specifically the Chinese economy,” he said.

Australian tourists to Bali have enjoyed a uplift in spending power over the past three months on the back of a sell-off in rupiah. Picture: Supplied

“China is Indonesia’s largest two-way trading partner … and then also this global uncertainty is weighing on commodity prices.

“Indonesia is a large commodity exporter, so slightly weaker commodity prices can affect its export performance and I believe the current account deficit has widened somewhat, so these things do weigh on the rupiah somewhat.”

There are a host of other factors pulling the rupiah lower, Mr Walker said, including investor unease about some of Indonesian President Prabowo Subianto’s spending announcements.

“There is a lot of uncertainty around the fiscal policies of the Prabowo administration,” he said.

“They have had some recent budget cuts but there are also promises for large spending on programs.

“And the expansion of the ability for military soldiers to participate in the government increases uncertainty.

“The introduction of the new sovereign wealth fund is also centralising a lot of government finances underneath the president.”

President Prabowo’s flagship spending program is an estimated $44bn annual outlay on free lunches for pregnant women and schoolchildren, designed to improve nutrition across the country’s massive population base.

Excess government spending can trigger inflation, degrading the value of a currency.

Indonesian President Prabowo Subianto assumed office in October 2024. Picture: Yasuyoshi Chiba / AFP

But Mr Walker cautioned the fundamentals of the Indonesian economy remained sound and said while holidays may be “somewhat cheaper”, Australian investors were unlikely to be impacted.

“The underlying fundamentals are still there,” he said.

“I don’t think this is a signal the market is losing faith in the direction of the Indonesian economy overall.

“I think it’s markets reacting to current announcements and some of the news coming out of Indonesia, as well as the global conditions.

“I don’t expect there to be a significant (rupiah) sell-off.”

Indonesia’s Central Bank has also intervened to stabilise the currency, buying up rupiah to prop up the price.

Mr Walker also said comparisons to 1998, in which economic shocks triggered riots and a revolution in Indonesia, were “overblown”.

“The level of upheaval that Indonesia experienced back then is probably very far off from the current conditions,” he said.

“It’s probably likely most Australians won’t even notice the difference.”