This Week in Indonesian Business and Investment (26-2 Jul 2026)
The final days of June and the opening of July 2026 delivered a week of considerable consequence for Indonesia’s business and investment landscape, with legislative ambition, trade anxieties, and capital market turbulence all competing for attention. Running through almost every major development was a common thread: a government determined to accelerate reform, attract global capital, and deepen an economy that President Prabowo Subianto has set on a course towards eight per cent growth.
The PFII: Indonesia’s bid for financial centre status
Dominating the policy agenda this week was the accelerated deliberation of the bill establishing the Indonesian International Financial Centre, known by its Indonesian acronym PFII. Finance Minister Purbaya Yudhi Sadewa confirmed that the House of Representatives has agreed to fast-track the legislation, with a plenary vote targeted for 21 July and the government hoping President Prabowo can announce its enactment during his State Address in August. The bill, which entered the 2026 Priority National Legislation Programme, aims to establish a special economic enclave offering investors a package of incentives including tax breaks, immigration and employment facilities, and a dedicated commercial court for swift dispute resolution.
Purbaya has been explicit that the model draws inspiration from the Abu Dhabi Global Market rather than Singapore’s nationwide approach, meaning the incentive regime will be geographically contained. He has also made clear that funds flowing into the PFII could be directed towards domestic strategic projects, including those under the Danantara sovereign investment body, though he stressed that all investment decisions within the centre will remain entirely market-driven. Several reports this week cited unnamed wealthy global investors as the driving force behind the initiative, seeking a stable and well-governed haven for their capital. Whether this ambition translates into a genuine rival to Singapore, Dubai, or Hong Kong remains to be seen, but the legislative momentum is real, and the government’s willingness to build in strong legal protections – including a special PFII court – suggests it is taking the concerns of international investors seriously.
Trade balance: end of a remarkable streak
The week’s most striking piece of hard economic data was the confirmation that Indonesia recorded a trade deficit of US$1.61 billion in May 2026, ending a 72-month consecutive surplus streak that began in May 2020. The culprit was a surge in oil and gas imports, which jumped by more than 70 per cent year-on-year to US$4.51 billion, while palm oil exports to China suffered a near-40 per cent decline in volume – a development economists are partly attributing to rising domestic demand for crude palm oil ahead of the B50 biodiesel mandate and to China’s strategy of importing more crude product for domestic processing. Coordinating Minister for Economic Affairs Airlangga Hartarto attributed the shortfall primarily to elevated global energy prices and expressed confidence that the cumulative surplus of US$4.03 billion for the January-to-May period demonstrated underlying resilience. Trade Minister Budi Santoso struck a similarly measured tone, pointing to a significant rise in capital goods imports as evidence of strengthening investment and production capacity. Bank Indonesia pledged to deploy rupiah stabilisation measures and strengthen policy coordination with the government to bolster external resilience.
Battery investment and the EV supply chain
On the investment front, the week’s most significant announcement came from Australia. Pure Battery Technologies confirmed plans to invest approximately US$350 million – equivalent to roughly Rp5.7 trillion – in a precursor Cathode Active Material facility in Indonesia. The plant is designed to bridge a critical gap in Indonesia’s electric vehicle supply chain, converting Mixed Hydroxide Precipitate into high-value battery precursor material that sits between existing nickel processing and future battery cell manufacturing. The Investment Ministry has been actively facilitating the discussions, covering matters of legal entity structure, plant location, and financing arrangements. If realised, the project would represent a meaningful step towards Indonesia’s ambition of becoming an integrated global hub for EV battery production, leveraging its unrivalled nickel reserves.
The EV theme extended into the automotive sector, where GIIAS 2026 – the Gaikindo Indonesia International Auto Show – is shaping up to be a significant showcase. Hyundai Motors Indonesia confirmed it will launch the Ioniq 3 and unveil a locally produced seven-seater electric MPV, while Leapmotor previewed its B10 electric SUV through distributor PT Indomobil National Distributor at a price point below Rp500 million, positioning it competitively in a market segment that is rapidly becoming crowded with Chinese entrants.
Capital markets: a troubled first half
The Jakarta Composite Index closed the first half of the year down approximately 34 per cent year-to-date, making it one of the worst-performing bourses in Asia-Pacific. The picture improved somewhat in the early days of July, with the index gaining 0.87 per cent to close at 5,744 on Thursday, aided by easing geopolitical tensions in the Middle East and greater clarity on the trajectory of US interest rates. Progress in US-Iran negotiations helped restore crude oil shipments through the Strait of Hormuz, reducing global inflationary pressures and giving Bank Indonesia more flexibility on its own benchmark rate.
Even so, structural concerns persist. The Financial Services Authority, OJK, acknowledged publicly that the sustained index weakness is “not normal” and signals underlying problems requiring comprehensive reform. MSCI has kept Indonesia on a monitoring list, having stopped short of downgrading the country’s equity market from Emerging Market status in its 2026 review, but analysts warn that consistent implementation of reforms – particularly regarding ownership transparency and foreign exchange market liberalisation – is essential before the next evaluation in November. The OJK has responded by lowering the shareholder disclosure threshold and introducing staggered minimum free-float requirements for listed companies.
Amid the volatility, the Indonesia Stock Exchange appointed Jeffrey Hendrik as its new President Director for the 2026-2030 period, setting an ambitious target to propel the bourse into the global top ten by market capitalisation and daily transaction value, with a goal of reaching Rp30,000 trillion in market cap and 35 million investors by 2030. The IDX’s own finances told a more positive story: it posted a record net profit of Rp1.07 trillion for 2025, a 59.4 per cent increase on the prior year.
Digital economy, gig workers, and platform regulation
Several developments this week highlighted the tensions inherent in Indonesia’s fast-growing digital economy. A new revenue-sharing scheme for online motorcycle taxi drivers came into force on 1 July, capping the commission that ride-hailing platforms such as Gojek and Grab may charge at eight per cent, raising the drivers’ share of fares to 92 per cent. Drivers broadly welcomed the policy, though some reported that lower minimum fare structures had partially offset the gains. Separately, Indonesian lawmakers moved to summon TikTok Shop before the House of Representatives’ Commission VII following complaints from hundreds of small businesses that the platform had frozen billions of rupiah in seller balances, in some cases for years. The case has reignited calls for stronger regulations and an independent dispute resolution mechanism for MSME participants in e-commerce. Compounding the controversy, reports emerged that TikTok had slashed the technology workforce at Tokopedia – the Indonesian e-commerce platform it acquired through its ByteDance parent – from 1,100 to just 35 employees, with operations reportedly shifted to China, raising questions about the original commitments made when the deal was approved.
On the positive side of the digital ledger, the Ministry of Finance reported that state revenue from the digital economy reached Rp52.85 trillion as of May 2026, the bulk of it from VAT on digital trade conducted via electronic systems, while OJK confirmed plans to introduce a 2026-2031 roadmap for digital finance and crypto assets, built around principles of affordability, integrity, agility, and sovereignty.
SOE restructuring and bilateral diplomacy
The week also saw meaningful progress on two fronts that will shape Indonesia’s medium-term economic trajectory. The government confirmed it is restructuring state construction companies PT PP and PT Adhi Karya under the supervision of BP BUMN and with the involvement of state banks, as part of a broader programme to reduce the number of state enterprises from over 1,000 to around 250. Meanwhile, President Prabowo met with Belarusian President Aleksandr Lukashenko to launch a 2026-2030 bilateral cooperation roadmap, with both nations targeting US$500 million in trade and investment. Belarus expressed particular interest in sourcing Indonesian crude palm oil and cocoa, while Indonesia signalled interest in Belarusian fertilisers and agricultural equipment. The PFII bill, the IEU-CEPA ratification process, and the Indonesia-EAEU Free Trade Agreement all featured in the week’s diplomatic conversations, suggesting that Jakarta is pursuing a genuinely multi-directional trade and investment strategy rather than depending on any single partner or bloc.
Looking ahead, the passage of the PFII bill in the coming weeks will be the single most watched development for international investors. If the legislation delivers the legal certainty and institutional quality its architects promise, it could meaningfully shift Indonesia’s attractiveness as a destination for sophisticated financial capital. The November MSCI review, the trajectory of the rupiah, and the pace of EV supply chain investment will be equally important markers. Indonesia enters the second half of 2026 with real vulnerabilities – a weakening currency, a capital market that has shed a third of its value, and a trade balance that has just broken a six-year winning streak – but also with a government that is legislating with unusual urgency and an investment community that, for now, continues to regard the country’s long-term fundamentals as sound.