JAKARTA – Indonesia is reeling from one of its largest stock market sell-offs since the 1998 Asian Financial Crisis, fueling investor anxiety over President Prabowo Subianto’s direction for Southeast Asia’s largest economy.
The rout intensified after MSCI warned this week about Indonesia’s investability, prompting a two-day plunge in the Jakarta Composite Index despite partial recovery on January 29 following regulatory pledges. Fund managers at firms like Aberdeen Investments and Valverde Investment Partners foresee further declines, citing Prabowo’s moves such as appointing his nephew to lead the central bank after ousting respected Finance Minister Sri Mulyani Indrawati.
The government’s budget deficit has hit a 20-year high outside pandemic years, driven by expanded social spending and the new Danantara sovereign wealth fund, which diverts US$5 billion in state dividends directly to the president. Additional concerns include state takeovers of palm oil plantations—spanning an area the size of Switzerland—and a major gold mine from foreign-linked firms, alongside proposals to lift the 3% GDP deficit cap and expand the central bank’s economic role.
Market turmoil deepened with resignations on January 30 from the Financial Services Authority head and Indonesia Stock Exchange CEO. The rupiah has weakened 0.6% against the dollar since January 29, hitting record lows, while bonds trade at a 35-basis-point premium over peers, signaling priced-in risks akin to Brazil and Colombia.
Despite strengths like its 300 million population, commodity wealth in palm oil and nickel, and EV growth, investors like those at Lombard Odier remain cautious, favoring markets such as India and South Africa. Prabowo defends his “socialist” policies as essential for 8% annual growth and reclaiming national wealth, with regulators responding via higher free-float rules and Danantara’s market participation to avert a downgrade to “frontier” status. Local economists call it a “wake-up call” for reforms to restore global confidence.