This triggered a massive sell-off of Indonesian stocks. Foreign investors have pulled $3.4 billion out of the Jakarta stock exchange since the start of 2026. The country’s stock market is now one of the world’s worst-performing, with the Jakarta Composite Index falling over 28% in 2026 thus far.
Long-drawn issue
MSCI designated Indonesia an emerging market in 1989, following a series of major financial reforms that opened its stock market to foreign investors. Indonesia has long attracted investors due to its bounty of natural resources and its large and growing population.
“Indonesia still has scale, demographics, strategic minerals, a large domestic market, and a political class that understands growth,” says Sukarsono. “The problem is confidence in the people making policy.”
“The potential downgrade flags serious concerns that have been raised from the beginning of Prabowo’s tenure as president: the misuse of state funds, a lack of transparency, corruption, the firing of capable technocrats, too much power concentrated in Prabowo’s hands, and a return to resource nationalism, among other things,” says Kurlantzick.
Prabowo defended his policy stance in a March interview with Bloomberg, claiming that the markets were not understanding him. “I just do what I think is in the best interests of my people,” he said. “I’m not too ideological. I’m not too doctrinaire. I look for the best solution pragmatically.”
A weakening rupiah
Though a stock market reclassification might seem like a distant, abstract problem for most Indonesians, experts say it will also hit the general populace. When foreign investors pull money out of the country, demand for the rupiah drops, and the currency weakens. This means that Indonesia will pay more for the goods it imports.
Indonesian retail investors could also take a hit. “There could be a modest impact to household balance-sheets given that retail equity market participation has risen in recent years,” explains Lavanya Venkateswaran, OCBC’s senior ASEAN economist.
Are market reforms sufficient?
Despite the doom and gloom, some experts, like Siwage Dharma Negara, an Indonesian economist and senior fellow at Singapore’s ISEAS-Yusof Ishak Institute, are holding out hope for a positive outcome.
“Maybe there won’t be a downgrade, since Indonesian policymakers quite swiftly responded to MSCI’s requests and concerns about information transparency and governance,” he says.
Others, like Kurlantzick, argue that even if Indonesia gets a favorable verdict, its stock market isn’t off the hook just yet.
“Even if Indonesia gets to keep its emerging market status, that’s not the end of the story—it just buys time,” he concludes. “The problems MSCI flagged are real and don’t disappear with a favorable verdict, so the biggest thing to watch is whether Indonesia’s promised reforms actually happen, or whether they quietly fade once the immediate pressure eases.”
