Flashback to the 1998 Monetary Crisis

The collective memory of the community regarding the 1998 monetary crisis has resurfaced. The rupiah exchange rate, which once plummeted to Rp 16,622 per US dollar on the Jakarta Interbank Spot Dollar Rate (Jisdor) as of March 25, 2025, has become a topic of news and discussion.

At a glance, the depreciation of the rupiah indeed approaches the level seen during the 1998 monetary crisis. At that time, the rupiah exchange rate in the Jakarta interbank spot market closed at Rp 16,900 per US dollar in June 1998. It even briefly reached Rp 17,000 per US dollar in January 1998.

However, the situation is considered different when viewed from the percentage of rupiah depreciation. During the 1998 monetary crisis, the rupiah exchange rate plummeted by 690 percent, or nearly sevenfold, from June 1997, when it was still around Rp 2,441 per US dollar.

On the contrary, the condition of the rupiah when it plummeted on March 25, 2025, was recorded to weaken by 9.43 percent compared to the same period last year. At that time, the exchange rate of the rupiah was at the level of Rp 15,189 per US dollar.

On the other hand, this weakening is deeper than the exchange rates of other regional countries (peers), such as the Korean won which weakened by 9.26 percent, the Indian rupee by 2.61 percent, the Philippine peso by 2.29 percent, and the Vietnamese dong by 3.47 percent. In fact, the Thai baht and the Singapore dollar actually appreciated.

Before the 1998 monetary crisis hit, signs began to appear from a number of domestic economic indicators. Based on Kompas archives, Indonesia's economic growth before the 1998 monetary crisis was recorded at 4.7 percent in 1997, falling far below the target of 7.1 percent.

By 1998, economic growth reversed to minus 13.1 percent. Furthermore, the inflation rate at the end of 1997 had reached double digits at 11.05 percent, a sharp increase compared to the previous decade when it was maintained below 10 percent. After the monetary crisis struck, the inflation rate skyrocketed to 77.6 percent in 1998.

Furthermore, the current account deficit continued to rise, from 2.9 billion US dollars in 1993/1994, or 2.1 percent of the Gross Domestic Product (GDP), to 8.1 billion US dollars in 1996/1997, or 3.5 percent of GDP. On the other hand, Indonesia's foreign exchange reserves at the end of 1997 reached 21,418.2 million US dollars, equivalent to 5.3 months of imports.

It turns out that our economic resilience is not strong enough to withstand external shocks. Aside from external influences, some of the difficulties we endure are also due to weaknesses within ourselves.

Two months before stepping down, the 2nd President of the Republic of Indonesia, Soeharto, had conveyed that the target of the 6th Five-Year Development Plan (Repelita) had been achieved, at least until mid-1997 it had run smoothly. He conveyed this in his accountability speech at the General Session of the People's Consultative Assembly (SU MPR) in Jakarta on March 1, 1998.

However, since the second half of 1997, a wave of monetary turmoil has hit. The turmoil has in turn made everything the government has tried so far fall apart.

"It turns out that our economic resilience is not strong enough to face external blows. In addition to external influences, some of the difficulties we suffer are also due to weaknesses in our own bodies," said the President (Kompas, March 2, 1998).

He also explained that government debt fell from 55 billion US dollars at the end of March 1994 to 54.1 billion dollars at the end of December 1997. In contrast, private debt increased from 28.3 billion US dollars to 82 billion dollars.

Likewise, the private debt-to-income ratio (DSR) increased, from 12.8 percent in 1993/94 to 27.4 percent in 1997/98. In contrast, the government DSR fell from 19.1 percent in 1993/94 to 11.8 percent in 1997/98.

On the other hand, looking at the current conditions, Bank Indonesia (BI) claims that the domestic economic fundamentals are still maintained amidst the still high global uncertainty. In the March 2025 Board of Governors Meeting, BI Governor Perry Warjiyo said that economic growth in 2025 is estimated to be in the range of 4.7-5.5 percent, with inflation maintained within the target of 1.5-3.5 percent.

In addition, Indonesia's foreign exchange reserves position at the end of February 2025 was 154.5 billion US dollars. This is equivalent to 6.6 months of import financing or 6.4 months of imports and government foreign debt payments. This achievement is above the international adequacy standard of around 3 months of imports.

Indonesia's Balance of Payments deficit in 2025 is also predicted to remain healthy along with the continuing surplus of capital and financial transactions, and supported by investment returns that remain attractive. The current account deficit is also maintained in the range of 0.5-1.3 percent of GDP.

Similarly, Coordinating Minister for Economic Affairs Airlangga Hartarto also said that Indonesia's economic fundamentals remain strong, even though the exchange rate continues to fluctuate. This is indicated by the achievements of a number of leading indicators of the economy.

"We'll see in the medium and long term. We have good exports, we have strong foreign exchange reserves, a good trade balance. So, with that, our fundamentals are good," he told the media crew at the State Palace complex, in Jakarta, Wednesday (3/26/2025).

This is similar to BI Governor Soedrajad Djiwandono's statement before the 1998 crisis. Our economic fundamentals are strong, he said. So, the crisis will not spread from Thailand to us.

On the other hand, a lecturer at the Department of Economics at Andalas University, Syafruddin Karimi, actually questioned the claim that the economic fundamentals were maintained as a guarantee of freedom from conditions such as the 1998 crisis. This claim does not answer the reasons for the plunge in the Composite Stock Price Index (IHSG) and the weakening rupiah.

Meanwhile, the Indonesia Stock Exchange on March 18, 2025 was forced to stop trading session I because the JCI was corrected by 6 percent. Trading that day was closed with the JCI at 6,011.84 or the lowest since 2021.

"This is similar to the statement of BI Governor Soedrajad Djiwandono before the 1998 crisis. Our economic fundamentals are strong, he said. So, the crisis will not spread from Thailand to us," Syafruddin said in writing, Thursday (3/27/2025).

Before the crisis hit, BI Governor J Soedradjad Djiwandono at that time emphasized that the Thai baht currency crisis did not affect the rupiah exchange rate. Cooperation between central banks in Asia continued to be carried out to prevent speculation and maintain exchange rate stability. The rupiah was maintained in the range of Rp 2,440-Rp 2,442 per US dollar (Kompas, May 19, 1997).

Two months later, the rupiah exchange rate moved to around Rp 2,500 per US dollar, even some money changers set each dollar at Rp 2,700. Related to this condition, Soedrajad asked the public not to panic quickly.

"Both our fundamentals and management have been tested, and we can pass this big test through cooperation with banks in the country and other parties," said Soedradjad (Kompas, July 22, 1997).

According to Syafruddin, in this situation, it is not enough for the government and monetary authorities to only convey an optimistic narrative, but honest communication, measured steps, and medium-term strategies are needed that are able to maintain the resilience of the national economy.

"2025 is not 1998. This crisis could come from the loss of credibility of the central bank, not from the collapse of the banking system. Government debt is low, but corporate debt and dependence on foreign portfolios are very high, similar to the vulnerable structure before 1998," Syafruddin said.

UPN Veteran Jakarta economist and public policy expert Achmad Nur Hidayat said that BI is adamant that the situation in 2025 will not be similar to 1998, because there is no political crisis and government debt is under control. However, there are several important things that are ignored.

First, dependence on short-term foreign capital. Foreign portfolios in the Indonesian stock market will reach 42 percent in 2025, higher than in 1997 which was 35 percent.

Second, the artificial current account deficit. Indonesia's current account deficit of 0.32 percent of GDP looks small only because imports are weakening, not because exports are strengthening. This condition is similar to 1997, when the current account deficit was controlled, due to an import recession.

Third, just as BI Governor Soedrajad Djiwandono in 1997 stated that the economic fundamentals were strong, BI is now repeating a similar narrative while turning a blind eye to the swelling corporate debt ratio, namely from 28 percent per GDP in 2020 to 35 percent per GDP in 2025.

Achmad added that BI's claim to increase liquidity to maintain market stability was actually counterproductive. In March 2025, BI increased rupiah liquidity by purchasing SBN worth Rp120 trillion, while selling 1.6 billion US dollars for exchange rate intervention.

"As a result, the supply of rupiah in the market has soared, exacerbating depreciation pressures. This mechanism is similar to the 1997 era sterilized intervention policy, which actually triggered a double deficit, fiscal and current account deficits, because BI printed new money to buy US dollars," he said.

In the end, uncertainty in the economy remains the same frame in every era. Instead of just building an optimistic narrative to calm the public and the market, concrete steps and real policies of the government will be felt and assessed by the public.