Bundles of Indonesian rupiah and US dollar banknotes are lined up at a currency exchange office in Jakarta, Indonesia, on Monday, June 8, 2026. Indonesia’s finance and central bank officials said over the weekend they would step up efforts to stabilize the currency and attract capital inflows after Indonesian stocks fell at the world’s fastest pace. Photographer: Dimas Ardian/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images
Experts have warned that investors will become increasingly wary of Indonesia following corruption convictions and warnings of a possible downgrade of the country’s market by index provider MSCI.
There is already evidence, with the Jakarta Composite Stock Index also down 7.9% in the past month and almost 35% year-to-date.
Concerns over President Prabowo Subianto’s fiscal policy, concerns over stock market governance at index provider MSCI and now a high-profile corruption case that resulted in a former minister being sentenced to a hefty fine and 10 years in prison are weighing on the country’s coffers.
“The Prabowo government’s populist policies have raised concerns among credit rating agencies and are viewed unfavorably by offshore investors,” Jayden Vantarakis, head of ASEAN equity research at Macquarie Capital, said in a July 1 note.
Indonesia has overtaken India as Asia’s least desirable market for fund managers, according to a Bank of America survey released in mid-June.
Rating agency S&P Global warned in February that rising fiscal pressures, particularly rising debt servicing costs, were increasing downside risks to Indonesia’s sovereign credit profile. Foreign investors reacted to this, net selling Indonesian stocks by $4.11 billion in 2026.
Bima Adinegara, executive director of the Indonesian Economic Law Research Center, said on CNBC’s “Squawk Box Asia” that one example of the problematic policy is the so-called “single gate” export system launched in May, under which exports of palm oil, coal and ferroalloys are funneled through a designated state-owned company, PT Danantara Sumberdaya Indonesia.
Jakarta City says this is to reduce revenue leakages and increase transparency, but Adinegara said this gives investors the impression that the Indonesian government is “trying to expropriate a lot of our natural resources and create a new layer of bureaucracy that is very difficult.”
Additionally, former Education Minister Nadiem Makarim was sentenced to 10 years in prison after an Indonesian court found him guilty in a corruption case related to Indonesia’s education digitalization program.
Makarim, who is also the co-founder of ride-hailing and payments giant Gojek, was fined 1 billion Indonesian rupiah ($55,870) and ordered to pay 809.6 billion rupiah in compensation.
Prosecutors allege that he and other officials steered technical specifications toward Google products and forced the Department of Education to procure Chromebooks at inflated prices, despite test results showing they were unsuitable for use in remote locations.
Adinegara said the signal to the business community is “very clear: when you’re dealing with government budgets, when you’re dealing with government procurement, you have to be very careful.”
This is causing investors in the startup world to think twice about whether they want to engage with companies that are close to the government, he added.
The lawsuit also comes after index provider MSCI last week extended its Indonesian market review until November. The country warned several months ago that it could be downgraded from its current “emerging market” classification to “frontier market” status. MSCI raised concerns about market access earlier this year and froze the country’s stocks from its index in January, citing investability concerns.
Adinegara said this was a “difficult situation” but noted that Jakarta remains reluctant to release information to the market to increase transparency.
“If we miss this opportunity to reform the stock market, Indonesia could possibly be placed on the advisory list or watch list,” he said. “The next step after November will be to be downgraded to a frontier market.”
