World Bank Flags MSCI Transparency Issue in Indonesia's Capital Market

The World Bank has spotlighted the issue of Morgan Stanley Capital International (MSCI) freezing Indonesian shares from its index last January, which prompted foreign investors to withdraw funds from Indonesia’s financial markets.

In its latest research report published in the June 2026 edition of Indonesia Economic Prospects, the MSCI issue concerning transparency problems led to foreign outflows totalling US$600 million throughout 2026.

“Transparency issues at the Indonesia Stock Exchange (BEI) flagged by MSCI last January caused foreign outflows for the year to reach US$600 million,” the report stated, as quoted on Friday (12/6/2026).

This also caused the rupiah to weaken further after the issue emerged, compounded by the conflict in the Middle East which added to the currency’s woes.

In January, MSCI conducted a review of the status of several Indonesian stocks in its emerging market index due to concerns over ownership transparency and low free float of shares.

“This development undermined market confidence, triggered a stock market slump, reduced foreign interest in Indonesian assets, and tightened domestic financing conditions through higher risk premiums and bond yields,” the report explained.

Foreign portfolio outflows from stocks and corporate bonds pushed the financial account into deficit, compounded by weaker foreign direct investment and other investment flows.

“Foreign portfolio outflows from the stock and corporate bond markets reached 0.1% of GDP in the first quarter of 2026. However, foreign inflows into Bank Indonesia Rupiah Securities (SRBI) of a similar magnitude nearly balanced the portfolio investment account,” the report stated.

Greater pressure came from other investments, which recorded a deficit of 0.5% of GDP in the first quarter of 2026, up from 0.3% of GDP in the first quarter of 2025, driven by net acquisitions of foreign assets by residents, particularly currency and deposits.