Jakarta. Indonesia’s $150 billion foreign exchange reserves may appear strong, but economists caution that underlying vulnerabilities remain, with stability still heavily influenced by external debt flows.

Anthony Budiawan, Managing Director of Political Economy and Policy Studies (PEPS), said a significant portion of the country’s reserves is built not on productive economic activity, but on accumulated foreign borrowing.

“Indonesia’s foreign reserves appear large in nominal terms, but they are inflated by a buildup of external debt, particularly by the government and Bank Indonesia,” Anthony said in a note on Tuesday.

He stressed that rupiah stability hinges less on the size of reserves and more on Indonesia’s ability to continuously attract foreign inflows, often through debt issuance.

“In practice, external debt is not only used for fiscal financing but also as a tool to stabilize the rupiah,” he said. “The rupiah’s stability ultimately depends on whether Indonesia can keep borrowing.”

Historical trends, he added, show that large reserves do not guarantee currency stability. Between 2014 and 2015, reserves fell by $9.44 billion while the rupiah weakened about 20% from Rp 12,185 to Rp 14,650 per US dollar.

A similar pattern emerged in 2018, when reserves dropped $17.13 billion and the rupiah depreciated 13.5% to Rp 15,202 per dollar.

The sharpest pressure came during the Covid-19 pandemic in 2020, when reserves declined by $10.7 billion in a single month and the rupiah slid roughly 20% from Rp 13,675 to Rp 16,575 per dollar.

In response to such pressures, the government typically turns to global bond and sukuk issuance to attract foreign capital, boosting reserves and easing short-term currency volatility. However, Anthony warned that this strategy deepens dependence on external debt.

Over the past decade, Indonesia’s reserves have risen from around $100 billion in 2014 to about $150 billion as of February 2026. Yet over the same period, the rupiah has weakened from around Rp 12,000 to roughly Rp 17,000 per US dollar.

Early signs of renewed pressure have already emerged in 2026. In the first two months alone, reserves declined by about $4.6 billion despite the government raising approximately $7.1 billion in external debt.

Anthony said escalating geopolitical tensions, particularly involving Iran, the United States, and Israel, could further strain Indonesia’s economy.

“Higher oil prices, disruptions to global supply chains, and capital shifts from emerging markets to safe-haven assets will create simultaneous pressure on Indonesia’s external balance,” he said.

Based on historical patterns, he estimates a rupiah depreciation of 15%–20% is not an extreme scenario. In a worsening geopolitical environment, the currency could weaken to Rp 20,000 per US dollar.

“This is no longer speculative but grounded in historical data. In more extreme conditions, rupiah depreciation could exceed 20% and occur within a relatively short period of three to six months,” he concluded.