Indonesian Economist Chatib Basri explains why Indonesia’s 2026 economy isn’t a repeat of 1998, why the rupiah is under pressure, and why fiscal confidence — not geopolitics — is the real risk to watch.
As the rupiah slips past Rp18,000 to the US dollar, one name keeps surfacing in Indonesia’s economic conversation: Chatib Basri. The country’s former Finance Minister (2013–2014) and ex-head of the Investment Coordinating Board (BKPM, 2012–2013) laid out his read on the economy at the Grab Business Forum 2026, held at Shangri-La Hotel, Jakarta, on June 9, 2026 — and his message landed somewhere between reassurance and warning.
The Domestic Economy Is Steadier Than It Looks
Basri’s starting point was calmer than many expected. He pointed to first-quarter household consumption, which held up well thanks to Ramadan and Eid spending — a sign, he said, that the domestic economy isn’t as shaky as public sentiment suggests.
On GDP growth, he stayed pragmatic. Whether the final number lands at 4.7%, 5.1%, or 5.6%, he argued, misses the bigger point: none of those figures represent negative growth. By global standards, in a year marked by widespread economic uncertainty, growth in the 4.5–5% range is a solid outcome.
One comparison Basri rejected outright was to the 1998 Asian Financial Crisis. The key difference, he said, is Indonesia’s flexible exchange rate regime — a structural shift that didn’t exist under the fixed-rate system of the late 1990s.
Beyond the exchange rate itself, he pointed to a more mature financial system, sharper risk awareness among institutions, and more sophisticated risk-management tools. Corporations and upper-middle-class households have also changed their behavior: unlike in 1998, many now hedge their currency exposure or hold foreign-currency assets, making the corporate sector far more resilient to rupiah volatility.
The Real Problem Isn’t Geopolitics — It’s Fiscal Confidence
This is where Basri’s analysis gets sharper. Using a Granger causality test, he found that roughly 23% of the variance in the rupiah-to-dollar exchange rate can be explained by movements in Credit Default Swap (CDS) rates — not by geopolitical tension in the Middle East, as many assume.
CDS rates function as a form of insurance for foreign investors holding Indonesian government bonds. When perceived fiscal risk rises, so does the CDS rate. Tellingly, Indonesia’s CDS numbers had already begun deteriorating in January 2026 — months before regional conflict escalated — after Moody’s revised the country’s economic outlook amid concerns that the budget deficit was approaching 3%.
Basri’s conclusion was blunt: “Our problem is a problem of confidence in fiscal policy.”
The Prescription: Cut Spending, Selectively
Faced with three classic policy levers — raise taxes, cut spending, or borrow more — Basri argued only one is realistic in the current environment: selective spending cuts.
Raising taxes would squeeze purchasing power among lower-income households already under pressure.
Borrowing more would be prohibitively expensive given high global interest rates and a weaker rupiah.
Cutting spending selectively, in his view, is the most credible path to restoring investor confidence in Indonesia’s fiscal discipline — without derailing the recovery.
A Warning on Inequality and the AI Disruption
Beneath the reassuring headline numbers, Basri flagged a group of Indonesians who are quietly falling behind. Households spending between roughly 3 million and 10 million rupiah a month have experienced negative real growth over the past seven years — a reminder that aggregate GDP figures can mask uneven outcomes.
He also raised a longer-term concern: AI-driven disruption could widen this gap further, accelerating a “K-shaped recovery” in which one segment of the economy grows rapidly while another falls further behind. For Basri, Indonesia’s dual challenge in 2026 is maintaining fiscal discipline to protect market confidence, while preparing its workforce to adapt to an AI-driven economy.
The Bottom Line
Chatib Basri’s assessment resists easy labels. Indonesia, he argues, is not in crisis — the domestic fundamentals are holding up, and the economy is not repeating 1998. But market confidence in fiscal policy is fragile, and restoring it will require disciplined, credible action from the government.
As he put it, if fiscal confidence risk is properly addressed, there’s real hope the situation can improve. For now, he says, the next move belongs to policymakers.