Capital Market Plummets: Is Investor Confidence Declining? Senior Economist Explains

Senior economist from the Institute for Development of Economics and Finance (Indef), Didik J. Rachbini, has assessed the recent decline in the Indonesian capital market, suggesting that investor confidence has dropped. Reports indicate that the Jakarta Composite Index (IHSG) has fallen significantly, and banking stocks such as BCA have seen value losses due to foreign investors exiting the market.

“The essential substance behind these figures is the issue of trust, which is currently absent from the market,” said Didik, who is also the Rector of Paramadina University, in a statement released on Sunday. He noted that although Bank Indonesia (BI) has implemented monetary interventions, investors remain unmoved. “The stock market continues to fall and the exchange rate remains weak. Trust is far more important and fundamental than mere numbers,” he added.

According to Didly, Indonesia’s growth and trade indicators are not particularly poor; however, the exodus of investors is a direct result of falling confidence. He pointed out that many nations maintain strong currencies despite high budget deficits or debt because investors trust the credibility of their government and institutions. He stressed that trust must be rebuilt and that a ‘sense of crisis’ regarding the current situation is necessary.

He stated that the market is currently awaiting consistent and reliable economic policies, including legal certainty where investment and private rights are protected. He cited the era of President Habibie’s National Reform Team as an example, where the establishment of a healthy democracy, the release of political prisoners, the creation of an independent central bank, and anti-monopoly laws helped strengthen the Rupiah from Rp16,800 to Rp6,500 per US dollar.

Furthermore, the market is closely scrutinising fiscal policy. Didik emphasised that the State Budget (APBN) is a document of trust, and its management will shape market perception. If the budget is managed carelessly—with uncontrolled spending and unvetted large-scale programmes—the market will lose faith and distance itself from Indonesia. “The market will trust the nation if the management of the APBN is measured, controlled, and processed with integrity in Parliament, with credible revenue and a manageable deficit,” he explained.

Global rating agencies and indices such as MSCI and Moody’s view Indonesia through the lens of market confidence rather than just statistics. Some economists believe the presence of Danantara Indonesia, as a state investment management agency, could serve as a catalyst for deepening the capital market. Conversely, some foreign investors are withdrawing capital due to perceived weaknesses in economic fundamentals.

While Luhut Pandjaitan disagreed that the decline is due to a lack of trust, noting that market downturns can occur globally, Indef has emphasised the need for transparency in the one-door export policy of PT Danantara Sumberdaya Indonesia (DSI) to avoid monopolies reminiscent of the New Order era. Additionally, economists suggest that the removal of incentives must be carefully calculated to avoid slowing the adoption of electric vehicles in Indonesia. The private sector’s role remains strategic in achieving the 2027 economic growth target of 5.8 to 6.5 per cent. Finally, the decision not to continue the tax amnesty is seen by Indef as a move that strengthens the credibility of the taxation system and encourages sustainable tax reform.