As the second half of 2025 begins, Indonesia is positioning itself as a relative safe harbor in turbulent global waters. Trade frictions fueled by U.S. President Donald Trump’s tariff hikes, coupled with escalating geopolitical tensions in the Middle East and beyond, have rattled financial markets worldwide.
Yet Indonesian policymakers insist the country’s economic fundamentals are resilient enough to withstand external shocks.
At a KSSK press conference held Monday afternoon (July 28) at Pacific Century Place, South Jakarta, Finance Minister Sri Mulyani stated that financial system stability (SSK) in the second quarter of 2025 remained secure, despite heightened global uncertainty.
She emphasized that current global conditions are heavily influenced by reciprocal tariff negotiations involving the United States, as well as escalating geopolitical and military tensions, particularly in the Middle East.
“We continue to strengthen the synergy between fiscal, monetary, macroprudential, and financial sector policies, not only to maintain stability but also to encourage economic growth,” said Sri Mulyani.
Maintaining Stability Amid Tariff Storms and Global Unrest
Since April, trade tensions between the United States and China have flared once again. Reciprocal tariff measures introduced by both countries have fueled global uncertainty. The impact was swift: the World Bank cut its 2025 global growth projection from 3.2% to 2.9%, while the OECD made a similar revision to 2.9%.
Amid this backdrop, Indonesia’s government seeks to maintain optimism while remaining cautious. “This is an environment we are closely monitoring and treating with caution,” Sri Mulyani remarked.
Domestically, several indicators offer reason for optimism. By the end of June, the Consumer Price Index (CPI) inflation stood at just 1.80% year-on-year, well below the target. Core inflation also declined to 2.37%.
Meanwhile, the rupiah, which had weakened to Rp16,865 per U.S. dollar in April, strengthened to around Rp16,235 by late June and remained relatively stable at Rp16,315 as of July 25. This trend was supported by Bank Indonesia’s interventions in both the global and domestic foreign exchange markets.
In the bond market, the yield on 10-year government securities fell from 6.62% to 6.51% by the end of July, reflecting strong investor appetite, with net foreign inflows reaching Rp58.29 trillion year-to-date. Indonesia’s foreign exchange reserves also remain robust — more than twice the international adequacy standard.
Stimulus and APBN as a Shock Absorber
Beyond monetary policy, the government is leveraging the APBN as a shock absorber. By the first half of the year, state spending had reached Rp1,406 trillion, or 38.8% of the budget ceiling, while the deficit remained under control at 0.84% of GDP. State revenue had also collected 40% of the target.
Government spending remains focused on social protection programs and consumption stimulus. These include transport subsidies and discounts, food assistance for 18.3 million families, and wage subsidies for workers earning below Rp3.5 million.
In the second half, the government launched an additional Rp24.4 trillion stimulus package, which includes discounted fares for airlines, trains, and ferries to boost tourism and domestic consumption.
These measures are expected to sustain purchasing power, support labor-intensive industries such as textiles and footwear, and maintain growth at around 5% through the end of 2025. “The trend of a strengthening rupiah and low inflation proves our fundamentals are quite strong despite global pressures,” Finance Minister Sri Mulyani emphasized.
Amid tariff wars, the government has also moved swiftly on the diplomatic front. U.S. import tariffs on Indonesian products were successfully capped at 19%, lower than the earlier rumor of 32%. This is significant for labor-intensive sectors that absorb large numbers of workers.
On the other hand, Indonesia’s 0% tariff policy on certain U.S. products is expected to help ease food and energy prices, keeping inflation in check.
Still, challenges remain. The manufacturing PMI for June was at 46.9, signaling contraction and underscoring that the industrial sector has yet to fully recover. Global slowdown has also weighed on exports, though the trade balance still booked a US$15.39 billion surplus as of May.
BI’s Moves: Safeguarding Stability, Supporting Growth
Alongside fiscal stimulus, Bank Indonesia (BI) plays a key role in maintaining national financial stability through 2025. BI Governor Perry Warjiyo stressed that BI’s policy response rests on four pillars: interest rate cuts, exchange rate stabilization, liquidity expansion, and issuance of government securities (SPN) in the secondary market.
Since May 2025, BI has cut its benchmark rate to 5.25% to sustain purchasing power and encourage growth. The rate reduction also reflected in longer-tenor instruments, such as the 12-month SRBI, which fell by around 40–50 basis points.
“As of July 23, the total SRBI position was Rp754.1 trillion, down from Rp923.5 trillion in January,” Perry said. This, he added, is expected to improve market liquidity and ease credit distribution.
To safeguard the rupiah, BI has been active in interventions, including through non-delivery forwards (NDF) abroad. The result: the rupiah has remained relatively stable despite external pressures. “We direct non-delivery forwards to remain stable and aligned with our conditions,” Perry noted.
In the banking sector, BI has provided liquidity incentives for banks that extend credit to strategic sectors such as agriculture, construction, and MSMEs. By early July, these incentives had totaled Rp376 trillion.
BI also eased limits on banks’ foreign funding and pushed further digitalization of transactions through QRIS, including trials in China, Saudi Arabia, and India.
“These policies remain within the corridor of stability,” Perry underlined.
Expert View: Stability Maintained, but Growth Remains Challenging
On external pressures, Deni Priawan, an international economics researcher at CSIS, offers a compelling perspective. He recalled that many initially feared U.S. protectionist policies, including Donald Trump’s “America First” tariffs, would trigger inflation in the U.S.
“The concern was that when Trump imposed tariffs, U.S. inflation would spike because imports became expensive, supply tightened, and prices went up,” Deni explained.
Normally, rising inflation would push the Fed to raise interest rates to cool the economy. If that happened, the impact would spill into Indonesia: capital outflows, a weaker rupiah, and Bank Indonesia forced to maintain higher rates to defend the currency.
“But it turns out, after Trump struck deals with countries like Indonesia, Vietnam, and the U.K., U.S. inflation wasn’t as high as feared,” he noted.
With U.S. inflation relatively stable, analysts now predict the Fed could even cut interest rates. “If the Fed lowers rates, the pressure on the rupiah disappears. In fact, the rupiah has strengthened at times,” Deni said. That, in turn, gave BI room to lower interest rates to support the domestic economy.
However, he cautioned that stability does not equate to strong growth. The bigger concern lies in the real sector. “Growth won’t be high. External demand is slowing, particularly for commodities like coal, as China and India shift toward greener energy,” Deni stressed. Domestic purchasing power is also still limited, as reflected in sluggish household consumption data.
“External demand is slowing, particularly for commodities like coal, as China and India shift toward greener energy,” Deni stressed.
Overall, he argued, Indonesia’s macroeconomic condition is safe: low inflation, a stable rupiah, sufficient foreign reserves, and positive capital inflows. “There’s no major pressure to worry about. But if we want higher growth, the problem is structural,” he emphasized.
According to him, strong growth requires deep reforms: legal certainty, efficient bureaucracy, and better logistics infrastructure. “If you try to force high growth with fiscal and monetary stimulus alone, it could backfire—overheating, higher inflation, weaker rupiah. Structural reform is the real key,” he said. Without it, growth will only spike temporarily, not sustainably.
“Fundamentals today are good, stable, and manageable. But to move up to 7%–8% growth, we need genuine reform. Fiscal and monetary policies are pulling against each other to maintain balance. At least in recent years, even though growth hasn’t been high, stability has been preserved,” Deni concluded.
