Quora Answer: Is Indonesia’s Stock Market Crisis Self-Inflicted?

The following is my answer to a Quora question: “Is Indonesia’s stock market crisis self-inflicted?”

On 16^th October 2026, MSCI proposed removing Indonesia from its emerging market indices entirely.  Not a demotion to frontier status.  A demotion to standalone — a classification so obscure it carries no index weight and attracts no passive fund flows.  The Jakarta benchmark index fell 11.57 per cent that day, its steepest single-session drop since January 1998.  Investors lost US$60 billion in one afternoon.  More than US$350 billion in market value has been erased since January.

Indonesia’s continued classification as an emerging market was “no longer appropriate” due to “significant concerns” about market dysfunction.  Even a downgrade to frontier status, MSCI said, would not reflect the severity of the problems.

Destroying Investor Confidence in Two Years

President Prabowo Subianto took office on 20^th October 2024.  Within five months, the Jakarta Composite Index had fallen 19.49 per cent.  Bank Central Asia was down 22.25 per cent.  Bank Rakyat Indonesia had lost 26.25 per cent.  Bank Mandiri had dropped 37.08 per cent.

Foreign investors pulled Rp22.21 trillion — US$1.35 billion — from the stock market in the first ten weeks of 2025 alone.  The rupiah hit a record low of Rp16,985 per US dollar in January 2026.  By October, it had fallen further to Rp18,070 per dollar before partial recovery.  Foreign ownership of Indonesian government bonds stood at 13 per cent — down from nearly 40 per cent in 2019.  The trajectory is not a market correction.  It is a sustained verdict on governance.

The first circuit breaker was triggered on 18^th March 2025, when the IDX Composite fell 7.1 per cent intraday — its largest single-session drop since September 2011.  Trading was halted.  The index closed down 3.8 per cent.  One analyst on the trading floor described it as “a good old-fashioned panic.”  That panic had causes.

Danantara: The Sovereign Wealth Fund That Answers to No One

Prabowo launched Danantara Indonesia — Daya Anagata Nusantara — in February 2025.  The stated purpose was a sovereign wealth fund to consolidate state-owned enterprises and mobilise capital for national development.  Initial capitalisation was announced at US$20 billion.  The reality was less tidy.

Danantara sits beyond parliamentary oversight.  It receives dividends from state-owned enterprises that would otherwise flow to the Finance Ministry.  All state-owned companies were placed under its umbrella, reporting directly to the president.  The fund then took over more than four million hectares of plantations and several mines.  It began positioning itself to control commodity exports.  It issued Patriot Bonds, marketed to Indonesians at 2 per cent — a rate that, adjusted for inflation, represents a government request for a patriotic donation dressed up as an investment product.  As of the time of writing, Danantara has not released its legally required financial statement.

A constitutional challenge was filed on 20^th March 2025 by plaintiff Rega Felix, arguing that Law No. 1/2025 — the legislation that created Danantara — had “radically changed” the definition and nature of state-owned enterprises and severed their financial and legal ties to the government.  The effect, critics argued, was to place the assets of the Indonesian state under a structure accountable to the president rather than to parliament, the courts, or the public.  State bank stocks fell immediately after Danantara launched.  The market understood what the government had built before the lawyers filed their papers.

The infrastructure budget, meanwhile, was cut by 75 per cent.  The funds were redirected to the free school lunch programme and to Danantara.  An economy that needs infrastructure to grow had its construction budget slashed so that a holding company without audited accounts could receive a capital injection.

The Nephew Problem

In January 2026, President Prabowo submitted his nephew Thomas Djiwandono to parliament for appointment as Deputy Governor of Bank Indonesia.  Parliament confirmed him unanimously.  Thomas Djiwandono, 53, is the son of economist Soedradjad Djiwandono, who served as Bank Indonesia Governor from 1993 to 1998, and who is married to Prabowo’s eldest sister, Bianti.  Thomas already held the position of Deputy Finance Minister, which he had taken in July 2024 under former President Joko Widodo.  He now holds a seat on the central bank board.  The rupiah fell to its weakest level against the US dollar immediately after Prabowo submitted the nominations.

Finance Minister Purbaya Yudhi Sadewa, when asked about the rupiah’s decline, said it was “not a major concern” and would have “minimal economic impact.”  Investors registered their disagreement in the only language markets speak.  Thomas Djiwandono, for his part, said there was “no other way than to prove my work.”  He is reportedly being positioned for the governor’s job when the current term expires — an outcome that would place the institution, legally required to be independent from the executive, under the stewardship of the president’s nephew.

The Djiwandono brothers represent a pattern, not an anomaly.  Rumours circulated that Budisatrio Djiwandono, Thomas’s brother and a Gerindra Party House member, was being considered for Foreign Minister.  Prabowo’s own son, Ragowo Hediprasetyo, known as Didit, has been placed in politically visible roles.  The Cabinet reshuffle of September 2025 removed Finance Minister Sri Mulyani Indrawati — the most credible economic voice in the government — and replaced her with Purbaya Yudhi Sadewa.

Sri Mulyani Indrawati, former World Bank Managing Director and one of Southeast Asia’s most respected economists, received one hour’s notice of her sacking.  She was chairing a ministry meeting when the call came from the president’s office.  A morning meeting with Prabowo that day had already been cancelled without explanation.  She had offered to resign twice previously.  Prabowo fired her on the third occasion.  The market’s reaction to her departure was not difficult to read.  She had been the last institutional check on a president with expensive ideas and no obvious mechanism for paying for them.

Resource Nationalism: The Ideology in Charge

Prabowo’s economic worldview is not difficult to locate.  He is a resource nationalist.  He believes Indonesia’s commodity wealth — nickel, palm oil, coal, copper, bauxite — is being extracted and exported at prices that do not reflect its true value, with the difference siphoned offshore by foreign companies and corrupt intermediaries.  His solution is state control of the value chain.

The Jokowi administration had already banned exports of unprocessed nickel ore in 2020, forcing downstream processing onshore.  Prabowo extended the logic.  In 2026, he announced that exports of selected raw materials must route through “a single state-owned enterprise.”  The stated rationale was curbing under-invoicing.  The official revenue estimate from this arrangement was US$150 billion annually — a figure that analysts described, charitably, as optimistic.

The rollout was characteristic of the administration.  Officials were reportedly informed of the plan the day before the announcement.  Which commodities were covered remained unclear weeks after launch.  The export entity was scheduled to begin acting as a sales intermediary shortly after the announcement and begin direct trading in January 2027.  Indonesia supplies significant shares of global nickel, palm oil, and coal output.  Disrupting those supply chains without a coherent operational structure does not increase Indonesia’s leverage.  It increases its unreliability.  The China Chamber of Commerce in Indonesia filed a public protest over rising corruption costs.  Chinese companies, which have invested heavily in Indonesian nickel processing, found themselves navigating an environment where the rules changed without notice, and the new intermediary structure had no audited accounts.

Resource nationalism is not inherently wrong as a policy instinct.  The question is whether it is accompanied by the institutional quality to execute it.  In Indonesia’s current configuration, it is not.  What the government has built is a set of state monopoly structures, placed beyond normal oversight, run by politically connected individuals, with no transparent accounting.  That is not resource nationalism.  That is resource capture dressed in nationalist language.

The Goreng-Goreng Problem

MSCI’s warning in early 2026 was not solely about macroeconomic policy.  It was about market structure.  Indonesian brokers have long used the term goreng-goreng saham — “stock frying” — for trading between related parties that artificially inflates a stock’s price.  It is not a new problem.  It is a structural feature of a market where ownership is concentrated, free floats are thin, and enforcement has been episodic at best.

MSCI cited problems with ownership and trading transparency as its primary basis for reclassification.  Regulators fined market participants over trading violations at three listed firms: Dian Swastatika Sentosa, Barito Renewables Energy, and Petrindo Jaya Kreasi.  Five senior officials resigned from the financial regulator and the stock exchange.  The government proposed expanded disclosure for large shareholders and raising the minimum free float of listed companies to 15 per cent.  MSCI froze Indonesian securities in its products and has not publicly confirmed that the proposed fixes are sufficient.  The consultation period runs until April 2027.  Reclassification to standalone is expected around mid-2027 unless MSCI finds “clear evidence of better market governance and functioning.”

UBS estimated US$4 billion in passive fund outflows from the reclassification alone, with potentially another US$15 billion from active investors following.  Foreign investors had already net sold US$4.7 billion of Indonesian stocks in 2026 before the October announcement.  Moody’s and Fitch both moved their sovereign outlooks to negative during the year.  The budget deficit stood at 2.92 per cent of GDP — within the legal 3 per cent cap, but uncomfortably close.  Foreign exchange reserves were US$156.5 billion.  The margin for error was shrinking as the errors multiplied.

The Structural Diagnosis

Indonesia is the fourth most populous country on earth, with 280 million people, the world’s largest nickel reserves, vast palm oil and coal resources, and a location that makes it central to Indo-Pacific trade routes.  It should be a structural beneficiary of supply chain diversification away from China.  The investment case writes itself.

Instead, foreign portfolio investors are leaving, passive funds face forced exits, the currency is at record lows, the finance minister was fired with an hour’s notice, the central bank board has the president’s nephew on it, the sovereign wealth fund has no audited accounts, and the index provider that determines whether global funds can own Indonesian assets is proposing to reclassify the country into investment irrelevance.  This did not happen because of external shocks.  Commodity prices fell, yes.  US tariffs hurt exports, yes.  But Indonesia’s peers in the region did not suffer a comparable market collapse.  While Jakarta plunged, regional markets outperformed.  The divergence is the story.

What Prabowo built in two years was a system that concentrates economic power in the executive, routes state assets through structures beyond parliamentary accountability, removes credible technocrats and replaces them with family connections, and announces major policy changes without operational plans.  Then it asked foreign investors to stay.  They did not stay.

The Assessment

Is Indonesia’s stock market crisis self-inflicted?  Yes.  The acceleration of capital flight, the MSCI reclassification proposal, the currency collapse, the bond market retreat, the departure of Sri Mulyani Indrawati, and the constitutional questions around Danantara are products of domestic policy choices made by one administration in two years.

Indonesia has a long history of recovering from self-inflicted crises.  The 1997-1998 Asian financial crisis ended the Suharto era and produced, eventually, a period of genuine institutional reform.  The question is whether the current trajectory produces a similar correction, or whether the institutional architecture being built — centralised, opaque, and family-staffed — proves more durable than the market’s patience.  Markets are not patient.  MSCI’s consultation period ends in April 2027.  The rupiah does not wait for political cycles.  Indonesia does not lack the resources to be a serious economy.  It lacks, at this moment, a government that understands the difference between controlling an economy and running one.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code