If there is one consistent attribute of every rupiah crisis, it is the tendency to compare it with the 1998 crisis. And understandably so. On May 19, 2025, the rupiah opened at Rp 17,685 per U.S. dollar, almost identical to the worst level ever recorded in Indonesia’s modern history: around Rp 16,800 to Rp 17,000 at the peak of the 1998 monetary crisis.
The difference is that back then, the situation was reversed. Within twelve months.
A Legacy No One Wanted
When B.J. Habibie was inaugurated on May 21, 1998 as Indonesia’s third president, what he inherited was not merely a collapsing currency. Inflation had already reached 77.6%. GDP had contracted by nearly 14%. The banking sector had negative equity.
Tens of billions of dollars in short-term private dollar debt were maturing almost simultaneously, without hedging. Beyond those figures, the political legitimacy of the regime had just collapsed after three decades.
The market did not trust him. Habibie was viewed not as an economist, but merely as an aircraft technocrat. Lee Kuan Yew even openly stated that Habibie’s rise could leave the rupiah even more powerless.
And yes, Habibie began from a point of zero credibility, facing a crisis far deeper than the one faced today.
Eight Steps That Worked Together
Habibie borrowed his way of thinking from the aviation world. A stalled aircraft cannot simply be forced to climb again. It must first be stabilized, finding a new balance against gravity before returning to cruise.
The economic translation was simple: growth targets had to be set aside temporarily, while the fundamental variables were stabilized first.
The first and most fundamental step was separating Bank Indonesia (Central Bank of Indonesia) from the government through Law No. 23/1999, turning it into an independent institution with a single mandate: maintaining rupiah stability. This ended the era in which BI could be pressured into printing money to cover deficits.
At the same time, Bank Indonesia Governor Syahril Sabirin raised SBI interest rates to 70% and shifted the monetary target toward Net Domestic Assets, an acknowledgment that the root of the crisis lay in Bank Indonesia Liquidity Assistance funds that had flowed without conditions to troubled banks, totaling Rp 144.5 trillion.
On the banking side, 38 banks were shut down, seven were taken over by the Indonesian Bank Restructuring Agency (BPPN), and four state-owned banks were merged into one: Bank Mandiri. The IMF was embraced not as a force imposing dictates, but as an anchor of credibility.
The fourth Letter of Intent was signed in July 1998, accompanied by the disbursement of around US$6.3 billion in loans. For global markets, this signaled that Indonesia was serious. The Frankfurt Agreement and the Paris Club later restructured US$4.1 billion in private and bilateral debt, reducing pressure on dollar demand from mounting repayments.
Habibie also kept subsidized electricity and fuel prices from rising during the crisis, while simultaneously implementing the Social Safety Net program. Both were not merely populist policies, but buffers designed to prevent painful reforms from triggering a social explosion that could destroy the recovery itself.
There was also one factor often overlooked in the 1998 recovery narrative: the peaceful legislative election of June 1999. That was not merely a political event. For the market, it destroyed the risk component that had been attached to every Indonesian asset for a year.
As a result, the rupiah strengthened from Rp 16,800 to Rp 6,550. Inflation fell from 77.6% to 2.01%. GDP reversed from minus 13.1% to growth of 0.79%.
Habibie: "Bring Me the Problems"
Even before being inaugurated as president, Habibie had already begun moving. On April 1, 1998, he attended a summit in London and spoke before British investors, convincing them not to hesitate to enter Indonesia despite the country facing its worst crisis in three decades.
During the session, he said something unusual for a state official. He asked investors to give him a list of their problems, and guaranteed that every issue on that list would be resolved within two to three years.
It was not an abstract promise about economic recovery. Nor was it rhetoric about Indonesia’s potential.
He asked for concrete problems, and offered concrete accountability in return. For investors who were still deciding whether Indonesia was worthy of trust, the gesture carried its own weight.
What Could Be Borrowed, and What Could Not
Today’s conditions are far removed from 1998 in almost every important indicator. The economy is still growing at 5.61%. The banking system remains healthy. Inflation is under control.
Bank Indonesia Governor Perry Warjiyo even stated that the rupiah is currently undervalued, meaning its weakness has exceeded the actual fundamental pressures, with its fair value still expected to remain around Rp 16,500 in line with the state budget’s macroeconomic assumptions.
The current pressure comes largely from external factors: global risk-off sentiment and geopolitical tensions, not from weaknesses within the domestic system itself.
What remains most relevant from Habibie is not the specific policy formula. Bank Indonesia’s independence already exists. The banking system is already far more solid.
What remains relevant is the way he approached the problem: diagnose before prescribing, build trust before intervening, and do not wait for the storm to pass if something can still be done now.
He did not save the rupiah by exhausting foreign exchange reserves, because there simply were not enough dollars to do so. He stabilized it by making people no longer feel the need to panic and dump the rupiah.
Under any circumstances, the principle remains the same.
