Economists Raise Concerns Over Rupiah Redenomination Plan

Strategic Framework Crucial for Success

The proposal to redenominate the Indonesian rupiah by removing three zeros has sparked concerns among economists about the potential challenges if not accompanied by a comprehensive strategic framework. Kusfiardi, an economic analyst from FINE Institute, emphasized that public discourse has often focused on technical aspects rather than the macroeconomic and institutional prerequisites that determine the success of such a policy.

International Experience and Key Success Factors

Historical evidence suggests that successful redenomination has been part of a broader package of economic reforms. Countries like Turkey (2005) and Poland successfully implemented redenomination as part of comprehensive reforms that strengthened macroeconomic discipline, improved institutional credibility, and enhanced central bank capacity. Studies by the International Monetary Fund (IMF) and World Bank indicate that price stability and fiscal credibility are essential prerequisites for successful redenomination.

Critical Elements for Implementation

1. Macroeconomic Stability: Strong price stability and fiscal discipline form the foundation for successful redenomination.
2. Public Trust: Credibility of the central bank and government is crucial to avoid perceptions of instability.
3. Digital Infrastructure: Readiness of payment systems and digital infrastructure is essential to ensure smooth transition.
4. Behavioral Aspects: Effective public communication is needed to mitigate risks such as rounding effects and inflation perception.

Challenges in Indonesian Context

Kusfiardi highlighted that Indonesia needs to carefully consider these factors, particularly the readiness of its digital infrastructure and payment systems. The experience of countries like Ghana and Mexico shows that technological readiness and coordination among stakeholders are critical. Moreover, psychological biases and public perception need to be managed through consistent and clear communication to prevent potential negative impacts on price stability.

Conclusion

The proposed redenomination of the rupiah, revived by Finance Minister Purbaya Yudhi Sadewa, requires careful planning and implementation. Economists stress that without a strong strategic foundation, the policy risks failing to achieve its intended objectives and potentially causing economic disruption.