JAKARTA: President Prabowo Subianto is losing the trust of investors, and his growth agenda risks being undone by a plunging currency.
The special forces commander-turned-politician has run a chaotic administration since taking office in 2024, promising free meals for millions of school children and undoing decades of spending discipline to chase growth.
But a battering from the global energy shock and a number of unorthodox decisions – from centralising commodity exports under a sprawling sovereign fund that reports directly to Prabowo to new jobs and growth mandates for the central bank – have rocked investor confidence.
Those moves have taken the sheen off what was, just a couple of years ago, an emerging market poster child; today, credit default swaps imply South-East Asia’s largest economy will lose its investment-grade credit rating.
The country’s stock market is the world’s weakest performer in 2026, down more than 42%.
The rupiah is one of the hardest-hit currencies, too, and has become both a symptom and a source of trouble, as its fall starts to drive even more selling.
It is down 8% this year, and 7% since the Iran war erupted.
It now sits at 18,190 per US dollar, a record low, and in the past three weeks it gathered alarming momentum to make its steepest drop since 2020.
“Indonesia is suffering from a genuine confidence crisis, with serious governance red flags that overshadow any valuation argument,” said Tan Altundag, investment manager for emerging equities at Pictet Asset Management, which has aggressively cut its exposure to Indonesian stocks.
“The rupiah at 18,000/US dollar is not just eroding real returns for foreign investors... the currency slide risks becoming a self- reinforcing loop, pushing up inflation, tightening financial conditions, and ultimately weighing on growth.”
It is down even after a hefty 50-basis-point rate hike in May and a US$12bil drop this year in Indonesia’s foreign exchange reserves, which the central bank uses to defend the currency.
And now the effects are spilling over.
The foreign selling of stocks, a net US$3.2bil outflow to the end of May, is the heaviest since 2009 and data shows foreign ownership of government bonds, which stood at nearly 40% before the Covid-19 lockdowns, has collapsed to a near 20-year low at just 12.6%.
“It is true there is a doom-loop forming,” said John Woods, Asia chief investment officer at Lombard Odier, a private bank.
“Persistent outflows, with foreign holdings in bonds and stocks at multi-year lows, would continue to pressure the rupiah, liquidity, and asset prices - prolonged outflows could slow infrastructure and growth plans.”
Rating risks Indonesia’s credit and equity ratings are also on the line.
Downgrades would turn investors into forced sellers, and, in the case of credit, borrowing costs would be driven up.
Index provider MSCI is reviewing trading and transparency issues in equities and warned that a cut to frontier status is possible, though investors regard it as unlikely.
Moody’s and Fitch have cut their debt rating outlooks to negative, citing reduced policymaking credibility, and S&P has said its rating will depend on efforts to improve fiscal buffers. — The Jakarta Post/ANN
