Indonesia’s Push Toward a Circular Economy Amid Rupiah Volatility

The rupiah is falling. Prices are rising. Global winds are shifting.

In recent years, Indonesia has taken significant steps towards building a circular economy, aiming to reduce waste, encourage sustainable production, and support long-term economic resilience. However, these green ambitions come at a time when the country’s economic stability faces mounting pressure due to the weakening of its national currency, the Indonesian rupiah (IDR).

As of April 17, 2025, the rupiah closed at IDR 16,833 per US dollar, showing a slight strengthening from the previous day’s rate of IDR 16,837. Though this represents a marginal gain of 3.5 points, it’s part of a larger trend of currency depreciation that has raised concerns among investors and economists alike (Tempo, 2025). For context, in December 2020, the rupiah was valued at around IDR 14,200 per US dollar, highlighting a significant devaluation over the past five years.

Simply put, a depreciating currency erodes investor confidence, especially among foreign investors who seek currency stability and predictable returns. When the rupiah weakens significantly, it increases the cost of repaying foreign-denominated debt and inflates the price of imported goods. This, in turn, can lead to cost-push inflation and squeeze both consumers and businesses. Industries that rely heavily on imported raw materials may downsize or delay investment, leading to lower aggregate demand and suppressed real GDP growth. If sustained, this trend risks pushing the economy into a deflationary spiral—a dangerous cycle where weak spending and investment cause further economic contraction.

The rupiah’s recent exchange rate volatility can be attributed to several external shocks and global macroeconomic developments. Analysts suggest that geopolitical tensions, including President Donald Trump’s newly announced sanctions on Iranian oil exports and tightening US-China trade relations, have put upward pressure on the US dollar, thereby weakening emerging market currencies like Indonesia’s. Furthermore, the US dollar index has been strengthening due to relatively stable US economic fundamentals, prompting capital outflows from countries like Indonesia as investors seek safer assets.

That said, there is room for monetary policy intervention. According to Rully Arya Wisnubroto, Head of Research at PT Mirae Asset Sekuritas, Bank Indonesia (BI) continues to hold substantial foreign exchange reserves, which gives the central bank the ability to intervene in the forex market and maintain stability. BI has repeatedly stepped in to stabilize the rupiah whenever it approaches or surpasses IDR 17,000 per US dollar (Tempo, 2025).

Amid currency uncertainty, the Indonesian government remains committed to its circular economy roadmap, first outlined in its 2020–2045 Long-Term Development Plan (RPJPN). A circular economy seeks to decouple economic growth from resource consumption by promoting recycling, extending product life cycles, and transitioning away from the traditional linear economic model of “take, make, dispose.”

Initiatives in sectors like plastics, agriculture, and electronics aim to foster a green transition that not only mitigates environmental damage but also opens up new job opportunities and economic diversification. For example, the Ministry of National Development Planning (Bappenas) projects that by 2030, adopting a circular economy model could add 4.4 million net jobs and increase GDP by 0.5–0.7% annually.

For Indonesia, the challenge lies in achieving sustainable development while maintaining economic stability. The current currency pressures could threaten import-dependent industries, as a weaker rupiah makes imported goods, such as fuel, food, and raw materials, more expensive. This may contribute to cost-push inflation, affecting both businesses and consumers.

To address this, policymakers must strike a balance between long-term environmental goals and short-term economic management. Encouraging foreign direct investment (FDI) in green industries, expanding public-private partnerships (PPPs), and maintaining investor confidence through prudent fiscal and monetary policies will be crucial.

Indonesia’s pursuit of a circular economy offers a promising blueprint for inclusive, sustainable growth, especially in the face of climate challenges. Yet, as the rupiah remains under pressure, the road ahead will require careful navigation of exchange rate dynamics, global market volatility, and domestic structural reforms.

Works Cited

Dinda Shabrina. 2025. “Rupiah Rate Predicted to Plummet to 17,000 per USD Impacted by Pertamina Case.” Tempo. TEMPO.CO. March 2, 2025. https://en.tempo.co/read/1981486/rupiah-rate-predicted-to-plummet-to-17000-per-usd-impacted-by-pertamina-case.

Estherina, Ilona. 2025. “Kurs Rupiah Ditutup Menguat Tipis Ke 16.833 per Dolar AS.” Tempo. April 17, 2025. https://www.tempo.co/ekonomi/kurs-rupiah-ditutup-menguat-tipis-ke-16-833-per-dolar-as-1232489.

Giastuti, Asri Hadiyanti, Caroline Aretha Merylla, Anggi Pertiwi Putri, Anna Amalia, Irfan Darliazi Yananto, and Martha Siregar. 2024. “CIRCULAR ECONOMY NATIONAL ROADMAP & ACTION PLAN.” https://www.un-pageindonesia.org/assets/uploads/4c832-en-roadmap-action-plan-ce-18-09-2024-.pdf.