{ "success": true, "data": { "id": 1861988, "msgid": "why-investors-are-suddenly-fleeing-indonesia-1784130618", "date": "2026-07-15 20:03:06", "title": "Why Investors Are Suddenly Fleeing Indonesia", "author": " ", "source": "GALERT", "tags": "", "topic": "Economy", "summary": "Indonesia's economic stability is under threat as the closure of the Strait of Hormuz drives up energy subsidy costs, weakening the rupiah and triggering a stock market sell-off. Investor confidence is further shaken by President Prabowo Subianto's ambitious spending plans, which are straining the state budget and raising concerns about fiscal sustainability. Credit rating downgrades and a potential demotion to frontier market status by MSCI now loom, threatening to cut off access to vital foreign capital.", "content": "

Since the pandemic, Indonesia has recorded stable annual economic\ngrowth of around 5%. Then, Iran closed the Strait of Hormuz. As the\nlargest economy in Southeast Asia, which remains heavily dependent on\nfuel imports despite having its own oil reserves, the impact on state\ncoffers was immediate. The cost of energy subsidies, previously budgeted\nat around Rp396 trillion, soared. Reuters reported in March that\npolicymakers needed at least an additional Rp108 trillion to keep fuel\nprices stable. The rupiah exchange rate plummeted by 8%, hitting a\nrecord low near Rp18,000 per US dollar. Meanwhile, the Jakarta stock\nmarket, previously expected to break records above the 9,000 level,\nplunged by a third, making it the worst-performing bourse this year.\nForeign investors pulled billions of dollars from Indonesian assets. The\nFinancial Times calculated that global investment funds have recorded\nnet sales of Indonesian shares worth around Rp70.2 trillion so far this\nyear, the largest sell-off since the run-up to the 1997-1998 Asian\nFinancial Crisis. Markets were rocked by the surge in energy costs\ncoinciding with President Prabowo Subianto\u2019s various big-spending\npromises. During the 2024 election campaign, Prabowo pledged to boost\neconomic growth to 8% through trillions of rupiah in state spending on\nhousing, education, and health. Since his election, he has also launched\na new sovereign wealth fund managing assets worth around US$900 billion,\nequivalent to Rp16.2 quadrillion. While this additional spending enjoys\nstrong political and public support, investors and some economists have\nvoiced concerns. Leiden University economist Rizal Shidiq described\nPrabowo\u2019s policies as \u2018too ambitious\u2019 and \u2018inefficient,\u2019 adding that the\nStrait of Hormuz closure makes the government\u2019s spending plans appear\n\u2018increasingly unsustainable\u2019. For years, Indonesia enjoyed stable growth\nthanks to budget discipline and a deficit cap of 3% of gross domestic\nproduct. However, the Prabowo administration is now criticised for\nrelying on larger deficits and pursuing debt-fuelled economic growth.\nAccording to CEIC data, Indonesia\u2019s debt-to-GDP ratio is 40.75%,\nrelatively low compared to many developing nations. The main issue,\nhowever, is the cost of servicing that debt. Local media recently\nreported that nearly a quarter of tax revenue in 2026 will be used to\npay interest on debt, more than double the ratio recommended by the\nInternational Monetary Fund. Indonesia also lags behind Southeast Asian\npeers like Thailand, Vietnam, and the Philippines in tax revenue\ncollection. Jakarta faces significant refinancing pressure, with\ngovernment debt worth around Rp834 trillion (US$46.1 billion) maturing\nthis year, according to economic media outlet Kontan. \u2018The government\nreally wants to accelerate growth,\u2019 wrote Arianto Patunru, a researcher\nat the Australian National University\u2019s Indonesia Project, in a recent\nblog post. \u2018But ambition is no substitute for credibility.\u2019 Concerns\nabout credibility are already reflected in rating agency assessments.\nEarlier this year, Moody\u2019s and Fitch downgraded Indonesia\u2019s outlook to\nnegative, judging that Prabowo\u2019s accelerated spending carries fiscal\nrisks. In January, MSCI, the US-based financial services company that\nmanages benchmark indices for global investors, warned that Indonesia\nrisks being downgraded from emerging market to frontier market status.\nMSCI cited a lack of transparency in ownership at several companies\nlisted on the Indonesia Stock Exchange, as well as allegations of\ncoordinated trading patterns, which make it difficult for investors to\nknow the true number of shares in circulation and undermine confidence\nin market pricing. In a further blow, S&P Global Ratings warned last\nweek (9 July 2026) that it may also announce a similar downgrade due to\ntransparency issues. Such a reclassification would be a severe setback\nfor one of the G20\u2019s fastest-growing economies, as many institutional\ninvestors avoid frontier markets. \u2018The downgrade would have a very\nserious impact because Indonesia would fall off the radar of investors\nfocused on emerging markets, precisely when the country desperately\nneeds additional capital to drive economic growth,\u2019 Shidiq said.\nAlthough a drop in oil prices is expected to help stabilise state\nfinances, Prabowo remains under significant pressure to rein in his\nspending ambitions. However, Siwage Dharma Negara, a senior researcher\nat the Singapore-based ISEAS \u2013 Yusof Ishak Institute, doubts this will\nhappen. \u2018I think populist spending will continue to grow faster than\nstate revenue growth,\u2019 Negara told DW. \u2018If this trend continues, the\nmarket will view Indonesia as a high-risk investment destination.\u2019 The\n1998 Asian Financial Crisis taught Indonesia a hard lesson about the\nimportance of fiscal prudence. High debt, cronyism, and weak banking\nsupervision led the country to the brink of collapse.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/why-investors-are-suddenly-fleeing-indonesia-1784130618", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }