If there’s one consistent attribute of each rupee crisis, it’s the tendency to check it with the 1998 crisis. And that is comprehensible. On May 19, 2025, the rupiah opened at 17,685 rupiah per US dollar, almost similar to the worst level ever recorded in Indonesia’s modern history: around 16,800 to 17,000 rupiah at the peak of the 1998 monetary crisis.
The difference is that back then it was the opposite way around. Within twelve months.
A legacy nobody wanted
When BJ Habibie was sworn in as Indonesia’s third president on May 21, 1998, he inherited greater than only a currency collapse. Inflation has already reached 77.6%. GDP shrank by almost 14%. The banking sector had negative equity.
Tens of billions of dollars value of short-term private dollar debt matured almost concurrently, unsecured. Beyond these numbers, after three many years, the regime’s political legitimacy has just collapsed.
The market didn’t trust him. Habibi was not seen as an economist, but merely as an aviation technocrat. Lee Kuan Yew even openly stated that Habibi’s rise in popularity could make the rupee much more powerless.
And so, Habibie began from some extent of zero credibility, facing a crisis much deeper than the one he faces today.
Eight steps that worked together
Habibie borrowed his way of considering from the world of aviation. A stopped aircraft cannot simply be forced to climb again. It must first be stabilized, finding a brand new balance against gravity before returning to cruise.
The economic explanation was easy: it was mandatory to temporarily postpone growth goals and first stabilize fundamental variables.
The first and most fundamental step was the separation of Bank Indonesia (Central Bank of Indonesia) from the federal government under Law No. 23/1999 and its transformation into an independent institution with a single goal: maintaining the steadiness of the rupiah. This ended the era wherein BI could possibly be pressured to print money to cover deficits.
At the identical time, Bank Indonesia Governor Syahril Sabirin raised SBI rates of interest to 70% and shifted the monetary goal towards net domestic assets, confirming that the crisis is attributable to Bank Indonesia liquidity support funds, which, totaling 144.5 trillion rupiah, flowed without conditions to distressed banks.
On the banking side, 38 banks were closed, seven were taken over by the Indonesian Bank Restructuring Agency (BPPN), and 4 state-owned banks were merged into one: Bank Mandiri. The IMF was seen not as a commanding force but as an anchor of credibility.
The fourth letter of intent was signed in July 1998, with the disbursement of loans value roughly $6.3 billion. For global markets, this meant that Indonesia was taking the problem seriously. The Frankfurt Agreement and the Paris Club later restructured $4.1 billion of personal and bilateral debt, reducing pressure on dollar demand from rising repayments.
Habibie also prevented subsidized electricity and fuel prices from rising throughout the crisis while implementing the Social Safety Net program. Both weren’t only populist policies, but buffers designed to stop painful reforms from triggering a social explosion that might destroy the economic recovery itself.
One factor was often missed within the narrative of economic recovery in 1998: the peaceful legislative elections in June 1999. This was not merely a political event. From a market perspective, this destroyed the element of risk that had been related to every Indonesian asset for a yr.
As a result, the rupee strengthened from Rs 16,800 to Rs 6,550. Inflation dropped from 77.6% to 2.01%. GDP retreated from minus 13.1% to growth of 0.79%.
Habibie: “Bring me problems”
Even before his inauguration as president, Habibie had already began moving. On April 1, 1998, he attended a summit in London and spoke to British investors, urging them to not hesitate to enter Indonesia despite the fact that the country was facing its worst crisis in three many years.
During the session, he said something unusual for a government official. He asked investors to present him an inventory of their problems and warranted that every problem on this list can be solved inside two to 3 years.
This was not an abstract promise of economic recovery. Nor was it rhetoric about Indonesia’s potential.
He demanded specific problems and in return offered specific responsibility. For investors who were still wondering whether Indonesia was trustworthy, this gesture carried weight.
What can and can’t be borrowed
Today’s conditions are a far cry from 1998 on almost every necessary indicator. The economy continues to grow at a rate of 5.61%. The banking system stays healthy. Inflation is under control.
Bank of Indonesia Governor Perry Warjiyo even stated that the rupiah is currently undervalued, meaning its weakness has exceeded actual fundamental pressures, and its fair value continues to be expected to stay around 16,500 rupiah, in keeping with the state budget’s macroeconomic assumptions.
The current pressure is essentially attributable to external aspects: global risk attitudes and geopolitical tensions, moderately than the weakness of the national system itself.
What stays most significant in Habibie’s case will not be a particular policy formula. Bank Indonesia independence already exists. The banking system is now far more robust.
What stays necessary is the way in which he approached the issue: make a diagnosis before prescribing a drug, construct trust before intervening, and do not wait for the storm to pass if there’s still something that will be done now.
He didn’t save rupees by depleting foreign exchange reserves because dollars simply couldn’t afford it. He stabilized the situation by making people not feel the necessity to panic and abandon their rupees.
Anyway, the principle stays the identical.
