Indonesia’s central bank, Bank Indonesia, has taken emergency measures to stabilize the rupiah and lift market confidence after a significant fall in both the currency and the stock market. Foreign investors sold $150 million in stocks on Tuesday, adding to concerns among the investor community. The expanded role of the military in state institutions has also led to further anxiety and unease in the market.
Bank Indonesia’s intervention comes amid global uncertainty and domestic concerns over political and policy stability. Investors had expected President Prabowo Subianto to continue former President Joko Widodo’s pro-business policies. However, they are now grappling with shifting priorities as Prabowo’s costly welfare plans strain the nation’s finances and threaten to sap economic activity.
These concerns contributed to a rout in the nation’s stocks on Tuesday, sparking the first trading halt since the pandemic. The turmoil has added to doubts about the investability of Southeast Asia’s largest equities market, which is down 20% from a September peak. There are also concerns about the health of Indonesia’s public finances, including an early-year budget deficit and a 20% drop in state revenues.
Bank Indonesia intervenes amid market turmoil
The outlook remains uncertain amid unclear budget allocation plans and a lack of new revenue-generating measures. The newly launched sovereign wealth fund Danantara, which has a direct reporting line to the president, has stoked fears of political interference and transparency risks.
The fund’s control over companies making up more than a fifth of the JCI Index has added to investor unease. Overseas investors have already pulled almost $1.8 billion from Indonesian stocks on a net basis this year amid broader pressures from a stronger dollar and rising trade tensions. The outflows have contributed to the rupiah falling more than 2% this year.
Goldman Sachs Group Inc. has downgraded the nation’s equities to market weight from overweight, citing weaker earnings, policy uncertainties, risks to state-owned banks’ profitability, and a wider fiscal deficit. The government’s securities regulator has eased rules on stock buybacks for the next six months in an effort to provide some relief to the market.
Meanwhile, the central bank kept its key interest rate unchanged for a second straight month to safeguard the rupiah.
