▲ Indonesian Rupiah
The currencies of Southeast Asian nations, including Indonesia, Thailand, and the Philippines, have plummeted this year due to the surge in global oil prices caused by the Middle East conflict and the strength of the U.S. dollar.
However, experts predict that it is unlikely to escalate into a region-wide economic deterioration similar to the 1997 Asian financial crisis.
According to Bloomberg and other sources on June 30 (local time), the exchange rate of the Indonesian rupiah against the U.S. dollar repeatedly hit record highs from the end of March through the middle of this month.
This indicates that the value of the rupiah has fallen significantly compared to the dollar.
Even before the Middle East conflict began in late February, the rupiah was already showing weakness due to investor concerns regarding stock market transparency and the independence of Bank Indonesia, the country's central bank.
This month, the exchange rate reached the psychological resistance level of 18,000 rupiah per dollar, marking another all-time high. During this period, the central bank raised its benchmark interest rate by a total of 1 percentage point over three separate hikes in one month to defend the currency.
The value of the rupiah has fallen by nearly 8 percent this year alone as the prolonged Middle East conflict continues to drive up global oil prices, making it the worst-performing currency in Asia, surpassing the Indian rupee, which fell by about 6 percent.
The sustained rise in global oil prices following the Middle East conflict has increased energy import costs, leading to overall inflation in various goods, including food and daily necessities.
As Indonesian authorities intervened in the foreign exchange market to defend the rupiah, foreign exchange reserves also fell to their lowest level in two years since 2024.
It was found that three major foreign banks operating in Indonesia remitted a significant portion of their profits back to their home countries due to concerns over the state-centered economic policies of President Prabowo Subianto, who took office in 2024.
The Indonesian subsidiaries of Citigroup, Standard Chartered, and HSBC remitted 11.5 trillion rupiah (approximately 994 billion won) in local funds back to their home countries over the past two years, an amount exceeding the combined net profits of the three banks during the same period.
Bank officials and economic experts told Bloomberg that this was due to growing concerns over Indonesia's policy direction, which, coupled with the weak rupiah, has damaged the confidence of foreign investors.
Recently, the global stock index provider MSCI maintained Indonesia's emerging market status, despite the stock market plunging nearly 30 percent this year, but hinted at the possibility of a downgrade to frontier market status if there is no sufficient progress by the time it reviews the Indonesian stock market in November.
The values of the Thai baht and the Philippine peso, which are highly dependent on energy imports from the Middle East, have also recorded significant declines this year.
The value of the Thai baht against the dollar has fallen 5.2 percent from the beginning of the year to date, while the Philippine peso has dropped 3.7 percent during the same period.
These countries are also suffering from concerns over worsening current account balances and capital outflows due to the surge in energy import costs following the Middle East conflict.
In a recent report, InnovestX Securities, a major Thai brokerage firm, pointed out that rising tensions in the Middle East have increased demand for the dollar, a safe-haven asset, and that high oil prices are weakening the macroeconomic stability of net energy-importing countries like Thailand.
The Bank of Thailand projected that its current account surplus, which reached 15.9 billion dollars (approximately 24.6 trillion won) last year, would shrink to nearly zero this year due to the surge in energy import costs.
Japan's Mitsubishi UFJ Financial Group (MUFG) also stated in a report that the Philippine peso is showing weakness as the U.S. Federal Reserve is expected to raise interest rates around October.
MUFG observed that the decline in the peso's value reflects a structural current account deficit and a high reliance on external financing, adding that the Philippines' difficulties are mounting as it faces persistent inflationary pressure.
The Bangko Sentral ng Pilipinas raised its benchmark interest rate by 0.25 percentage points in April and again by 0.25 percentage points on the 18th of this month to defend the exchange rate.
However, InnovestX Securities predicted that because economic conditions vary by country, the current weakness in Southeast Asian currencies can be viewed as manageable local stress, and it is unlikely to spread into a situation like the 1997 Asian financial crisis.
For instance, in the case of Thailand, the Stock Exchange of Thailand (SET) index has risen by about 26 percent this year, and net foreign investment inflow has reached approximately 900 million dollars (approximately 1.39 trillion won).
This contrasts with the situation in Indonesia, where foreign investment outflows are prominent, with the stock market falling about 29 percent this year.
Thailand also has foreign exchange reserves amounting to about 53 percent of its gross domestic product (GDP), the highest level in the region.
Reflecting these circumstances, international credit rating agency Moody's recently lowered Indonesia's sovereign credit rating outlook to negative while upgrading Thailand's outlook to stable.
(Photo: Getty Images)
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