The Tamesis
February 2, 2026
jakarta – Indonesia’s government scrambled to reassure investors this week as growing concerns about governance and market transparency triggered an $80 billion (S$101 billion) stock market rout.
The move comes after the rupiah fell to a record low a week ago, adding to ongoing unease over Indonesia’s fiscal imprudence, nepotism and aggressive state intervention.
The Jakarta Composite Index (JCI) plunged nearly 9% on January 28 after MSCI warned that it may downgrade Indonesia from an emerging market economy to a frontier market economy, citing concerns about the investability of local stocks. The index provider said it would immediately suspend certain index changes, including additions, until regulators address concerns about tight controls on ownership of listed companies.
This echoes long-standing concerns among investors about the transparency of “free floats,” the portion of a company’s stock that is available for public trading.
Many stocks are said to be lightly traded and effectively controlled by a handful of wealthy individuals, making them vulnerable to price manipulation.
To calm the market, Coordinating Minister for Economic Affairs Airlangga Hartarto pledged stock market reforms at a media briefing on January 30.
He outlined new measures to deepen the stock market, including increasing the minimum free float required for listed companies to 15% from 7.5% by March and allowing pension and insurance funds to invest up to 20% of their portfolios in equities, up from the current 8% cap.
On January 28 alone, about 45.5 trillion rupees (S$3.4 billion) of stocks were sold, with JCI closing down 7.4%.
However, Mr Airlangga highlighted the index’s rebound on January 30 and emphasized the government’s commitment to market stability.
“Indonesia’s economic fundamentals remain strong and coordination between fiscal and monetary authorities is progressing well,” he added.
On the same day, Financial Services Authority Chairman Mahendra Siregar, Vice Chairman Mirza Adityaswara and Indonesian Stock Exchange Chairman Iman Rachman simultaneously tendered their resignations.
On January 28, Indonesia’s sovereign wealth fund Danantara announced the forced transfer of the Martabe gold mine to a state-owned entity, exacerbating panic.
The move shocked the investment community as the mine is a key asset of PT United Tractors, a subsidiary of PT Astra International, one of Indonesia’s largest and most diversified conglomerates and a bellwether stock heavily held by foreign investors.
“The move is a unilateral expropriation without due process,” a Jakarta-based business consultant who does business with state-owned enterprises told The Straits Times. “It’s like destroying Indonesia’s reputation for legal certainty.”
Mr Maurice Maulana Situmorang, senior lawyer and partner at Dentons HPRP, said the government was likely to face litigation and international arbitration over the Martabe mine.
“Specific terms, regulations and procedures must be followed before such revocation of rights can be taken,” he said.
On January 27, parliament appointed Thomas Djiwandono, deputy finance minister and nephew of President Prabowo Subianto, as senior deputy governor of Bank Indonesia, fueling investor concerns.
Prabowo’s nomination earlier in January was widely criticized as undermining the central bank’s independence and forcing it to adopt pro-growth policies such as premature interest rate cuts to support the president’s ambitious annual target of 8% economic growth by the end of his term in 2029.
News of Mr Thomas’s nomination caused the rupiah to plummet to nearly 17,000 per dollar on January 19-20 – an all-time low that reflects falling market confidence, as was the case during the 1998 Asian financial crisis, when the rupiah peaked at 16,800 per dollar.
The government argued that the rupee depreciated only about 4% against the dollar last year.
However, Wijayanto Samirin, senior economist at Paramadina University, pointed out that the dollar has depreciated by about 10% against major global currencies in the past year.
This means the rupee’s intrinsic value has actually plummeted by about 14%, he said.
“The credibility of the rupiah is highly dependent on Bank Indonesia. If Bank Indonesia is neither credible nor independent, so will the rupiah,” Dr Wijayanto told The Straits Times, adding that Mr Thomas’ appointment had caused damage to the central bank’s reputation.
Criticism of Bank Indonesia’s objectivity has increased following recent policy shifts seen as pliant to fiscal needs, such as premature interest rate cuts and money printing.
Over the past two decades, central banks have prioritized stabilizing and controlling inflation and resisted pressure from governments to lower interest rates or print money to boost economic growth.
This monetary instability comes against a backdrop of fiscal austerity. In 2025, state revenue fell short of the target, while the budget deficit surged to nearly 3% of gross domestic product, the legal limit, driven by massive populist spending.
The free nutritious meals program for students and pregnant women, a major campaign promise of Mr. Prabowo, was launched in January 2025 and will cost about 50 trillion rupees in the first year.
Despite a lack of interest from private investors, the budget is further strained by huge defense spending to modernize military equipment, as well as continued capital-intensive construction of the new capital, Nusantara.
