Introduction

An increase in Indonesian foreign exchange reserves from US$150.1b in November 2025 to US$156.5b in December 2025 is a positive development reflecting the external resilience of the national economy on the closing days of the 2025 fiscal year.

This US$6.4b increase in a single month did not occur in a vacuum but was driven by the convergence of several fundamental and policy factors, especially those taking place throughout the year.

To put it in the year-on-year context, Indonesia’s foreign exchange reserves in December 2025 were also higher than the record of US$155.7b in December 2024.

However, an interesting paradox exists: this strengthening of foreign exchange reserves was not accompanied by an appreciation of the rupiah against the US dollar. In fact, the rupiah weakened slightly from Rp16,660 on 30 November 2025 to Rp16,690 on 31 December 2025.

Notably, the exchange value of the US dollar to the rupiah was slightly stronger at Rp16,157 on 31 December 2024. For 2026, the government, through Bank Indonesia, set the target of Rp16,500 to 16,900 for the rupiah exchange against the US dollar.

How, then, do we explain this paradox? What were the sources of the increased reserves? What does it mean for Indonesia’s macroeconomic situation?

Promising Foundation

Several factors contributed to this increase in reserves.

First, a sustained trade balance surplus of US$3.22b for 67 consecutive months through November 2025. This trend demonstrated Indonesia’s enduring export competitiveness, driven by commodity downstream policies for resources such as nickel, tin and gold, which then increased export added value. Furthermore, a relatively stable import structure, despite strong domestic demand, also contributed to the growth.

Second, positive foreign capital inflow. Net inflow into the stock and government bond markets, totalling US$732.26m and Rp6.49t respectively in December 2025, reflected investor confidence in Indonesia’s financial assets.

This appeal stems from three dynamics. One, solid economic fundamentals with a stable growth projected (above 5%), controlled inflation and prudent fiscal policy. Two, stable and attractive monetary policy, with the Bank Indonesia interest rate remaining at 4.75%. This policy rate is relatively high compared to many developed countries, offering an attractive carry trade while demonstrating the central bank’s commitment to maintaining price stability and the value of the rupiah. Three, attractive market valuations for both debt securities (high yield) and stocks (cheap valuation).

Third, successful global sukuk issuance. The issuance of US$2b worth of sukuk in early December 2025 became a strategic funding source. This not only increased government revenue but also diversified the investor base and demonstrated positive international market acceptance of Indonesian financial instruments. The US dollar proceeds from this auction directly strengthened the reserve position.

Fourth, fiscal revenue in foreign currency. The government also received foreign currency from import/export duties (excise), taxes and non-tax state revenue related to the natural resources sector. Although not as large as other sources, according to a source at the Ministry of Finance, this flow offered a stable contribution to the foreign exchange supply.

At US$156.5b in December 2025, Indonesia’s foreign exchange reserves were in a robust position, capable of financing 6.3 months of imports plus servicing government foreign debt payments for the same amount of time, well above the international adequacy standard (three months). This provided a significant buffer for Bank Indonesia to maintain macroeconomic stability, deal with external shocks and guarantee foreign payments.

Paradox: Weakened Rupiah

Nevertheless, this accumulation in foreign reserves was followed by the weakening of the rupiah. A few factors were responsible for this paradox, including seasonal and corporate pressures as well as the exclusion of foreign exchange from the domestic monetary system.

Year-end is often marked by increased demand for foreign exchange for dividend payments, royalties, imports of goods related to new year preparations and the financial reporting of multinational companies. This increase of seasonal and corporate pressures can absorb the incoming foreign exchange supply.

We should also take into account the potential anomaly of the exclusion of foreign exchange from the domestic monetary system. Hypothetically, although foreign exchange is generated from exports, debt issuance and capital inflows, not all of these dollars are practically sold into the domestic banking system (through the spot market) and converted into rupiah.

Exporting companies, particularly in the commodity sector, may hold their export proceeds in offshore accounts (escrow accounts) or use them directly to pay for imported raw materials and foreign debt without first going through the domestic market. This creates what is known as “missing dollars”, foreign exchange that statistically adds to national reserves but does not exert direct appreciation pressure on the rupiah exchange rate because it is not traded in the domestic market.

Export Proceeds Regulations and Policy Implications

To address the weakening of the rupiah, the government has issued a government regulation on Devisa Hasil Ekspor (Export Proceeds – DHE) from exports of natural resources, particularly for non-oil and gas natural resource commodities.

The regulation requires exporters to place and sell a portion of their export proceeds domestically within a specified period, aiming precisely to address the rupiah’s decline. By “forcing” more export proceeds into the domestic banking system, supply pressure in the foreign exchange market will increase, which in turn can encourage rupiah appreciation.

This government regulation could fill in the missing link in the transmission of macroeconomic policy in the context of optimising the benefits of Indonesia’s abundant natural resources. By implementing this regulation, the government aims to govern the macroeconomy through clear monitoring, compliance and sanctions that could minimise potential rupiah depreciation in the future.

In other words, if the government could enforce the law properly, it could increase the foreign exchange reserve rate and, at the same time, maintain the rupiah’s value against the US dollar.

The January 2026 Market Crash

The consistent and firm enforcement of the DHE regulation has had a positive impact on Bank Indonesia’s resilience, demonstrated in its ability to deal with Indeks Harga Saham Gabungan (Composite Stock Price Index – IHSG) crash during trading on 28 January 2026.

The strength was demonstrated by the solid foreign exchange reserve position to support policy intervention needs for the stability of the rupiah exchange rate against foreign currencies.

With a slight monthly drop of Bank Indonesia’s latest foreign exchange reserve position to US$154.6b in January 2026, the rupiah’s movement remains stable, despite various external pressures on the domestic financial market.

These external pressures include: 1) the Morgan Stanley Capital International’s (MSCI) decision to refuse additional investment on the Indonesian equity market with its scrutiny to hold off their entire investments through May 2026 and; 2) Indonesia’s new Baa2 rating outlook that shifted from stable to negative by Moody’s, a major rating agency.

The closing position of the US dollar and the rupiah remained manageable below Rp16,900 throughout the period of 28 January 2026 to 12 February 2026, despite foreign investors booking a US$1.01b net selling position in the local equity market. In the same period, the position of the rupiah against the US dollar slightly increased from Rp16,706 to Rp16,818.

Meanwhile, foreign investors increased their ownership of Indonesian government bonds from Rp878.63t on 28 January 2026 to Rp882.86t on 12 February 2026. There is also the potential of a money inflow by investors through Bank Indonesia’s securities, though further investigations need to be carried out.

2026 Projections and Outlook

With the existing momentum, the projection of an increase in foreign exchange reserves to US$160.1b by December 2026 is realistically achievable, as it will be supported by several important pillars. These include sustained investment attractions, attractive financial market conditions, a surplus trade balance, and well-coordinated fiscal and monetary policy.

If the government can maintain the national economic growth above 5.2% (which was the case throughout 2025), it could attract portfolio capital flows and foreign direct investment (FDI) into the country. In other words, improved FDI realisation, particularly in the downstream and manufacturing sectors, would bring more stable and long-term foreign exchange.

Furthermore, as long as the government’s bond yield spread remains high and stock valuations remain reasonable, foreign portfolio capital flows will continue to increase, especially if Bank Indonesia can maintain macroeconomic stability. Stability in the financial market could invite FDI to support the vision of foreign exchange reserves to the target stated above.

Moreover, the continuation of downstream policies by the government could lead to a positive projection in 2026, based on the positive growth of foreign exchange reserves in 2025. At the same time, the government’s success in maintaining national manufacturing competitiveness would also lead to stronger export performance, thus keeping imports under control in line with efforts to substitute domestic products. A maintained current account surplus would continue to contribute to net foreign exchange reserves.

Lastly, the government should also measure its foreign debt issuance and maintain a monetary policy to enhance the economic climate in order to attract even more foreign exchange inflow. This attempt requires smooth coordination between the Ministry of Finance and other relevant stakeholders.

Conclusion

Indonesia’s increase of foreign exchange reserves through December 2025 reflected its resilient macroeconomic fundamentals, supported by a consistent trade surplus, positive capital flows and prudent policies. However, the rupiah’s continued depreciation reveals the complexity of policy transmission in an era of integrated global finance.

This gap between reserve statistics and the exchange rate highlights the importance of ensuring that foreign exchange generated by the real economy actually flows into the domestic monetary system.

Policies such as DHE, if implemented decisively and effectively, could bridge this gap, allowing the effort to strengthen foreign exchange reserves to directly contribute to the stability and strengthening of the rupiah exchange rate.

Going forward, by maintaining consistent economic policies, strengthening fundamentals and enhancing the effectiveness of foreign exchange regulations, Indonesia has a strong foundation to not only increase the quantity of its foreign exchange reserves but also enhance their quality in maintaining overall macroeconomic stability.

The projection of US$160.1 billion in reserves – with an annual average exchange value of Rp16,500 to Rp16,900 – by the end of 2026 is not ambitious, but it requires a careful navigation of global challenges and the optimisation of domestic policies.