Indonesian President Prabowo Subianto has accused MSCI of trying to “intimidate” Indonesia, after the worldwide index supplier threatened to downgrade the nation as a result of critical inventory market transparency points.
In an announcement on October 16, MSCI introduced that it had launched “a session on a proposal to reclassify the MSCI Indonesia Indexes from Rising Market to Standalone Market standing.” Amongst its issues are coordinated buying and selling practices, the excessive focus of possession in sure firms, and the restricted “free float” of shares – i.e., these brazenly out there for public buying and selling.
Chatting with his cupboard yesterday, Prabowo mentioned that MSCI “supposed to intimidate us,” Reuters reported. “I merely say to the MSCI: the Indonesian nation fears nobody and won’t be cowed… We possess power, we now have braveness, we’re keen to make sacrifices, and we refuse to give up.”
MSCI’s proposal was extra critical than its menace in January to downgrade Indonesia to “frontier market” standing as a result of transparency issues in its inventory market. The “standalone market” class, which incorporates the likes of Argentina, Lebanon, Palestine, Ukraine, and Zimbabwe, is a rung beneath “frontier market.”
MSCI mentioned final week that it selected a extra critical downgrade as a result of the lengthy record of reforms introduced by Indonesian policymakers to handle its issues had not achieved “ample progress.”
“Regardless of the introduced reforms, vital issues stay round market dysfunction, together with continued suspected coordinated buying and selling habits and lack of proof of significant enforcement,” it acknowledged. “Suggestions from market individuals suggests {that a} reclassification to Frontier Markets wouldn’t correctly acknowledge the depth of the market issues.” MSCI mentioned that it “expects to proceed with the proposed reclassification” barring clear proof of “materials enhancements in market governance and functioning.”
The announcement prompted a massacre on the Jakarta Composite Index, which plunged by round 15 p.c over two days of buying and selling. The Indonesian inventory market has been among the many worst performing on this planet in 2026, dropping round 40 p.c of its worth, whereas the rupiah has fallen to ranges not seen because the Asian monetary disaster of 1997-1998.
The prospect of an extra outflow of capital – a probable results of a downgrade to “standalone” standing – has heaped stress on Prabowo’s administration, which since coming to workplace in late 2024, has rattled markets with its centralized and free-spending method to financial administration. This has included each a multibillion-dollar free meal program and a rise within the state’s involvement within the Indonesian financial system.
Maybe much less necessary than particular insurance policies is Prabowo’s unstable, unpredictable and extremely customized model of financial governance, which represents a major change from the conservative stewardship of the previous few administrations. In March, each Moody’s and Fitch introduced rankings outlook downgrades for Indonesia, with the latter citing the “growing coverage uncertainty and erosion of Indonesia’s coverage combine consistency and credibility” and the “rising centralization of policymaking authority.” George Xu, a Director in Fitch Rankings’ Sovereigns workforce, mentioned in an announcement on Tuesday that MSCI’s announcement and the next market sell-off solely “reinforce the dangers” recognized by Fitch throughout its downgrade in March.
Prabowo’s defiant remarks concerning the MSCI menace, which have additionally been echoed by different Indonesian politicians in current days, are attribute of his political model and nationalist leanings. They’re additionally unlikely to do a lot to handle the rising issues about Indonesia’s investability, making it probably that Indonesia will face extra financial turbulence throughout the the rest of his time period.
