JAKARTA – Although Indonesia’s capital market authorities moved quickly in response to a warning from MSCI, analysts stress that sustained reform and macroeconomic policy credibility remain crucial to maintaining investor confidence.

As reported by IDNFinancials.com, MSCI had previously warned that Indonesia could face a downgrade to frontier market status if the capital market fails to address issues related to shareholder transparency and free float.

In response, Indonesia Stock Exchange (IDX) announced new regulations, including mandatory disclosure of shareholders owning more than 1%, the reclassification of investors into 28 categories, and an increase in the minimum free float requirement from 7.5% to 15%.

Quoted by Business Times, Mohit Mirpuri, Senior Partner at SGMC Capital, acknowledged that Indonesian authorities had acted swiftly and maintained active communication with MSCI.

“Our base case scenario is that Indonesia will remain in the emerging markets category. A more realistic outcome would be a technical weight adjustment rather than a structural reclassification,” he said.

Meanwhile, Harry Su of Samuel Sekuritas said transparency is the top priority in resolving the issue. However, he emphasized the importance of consistent regulatory implementation to prevent similar problems in the future.

“By complying with MSCI’s request for clearer transparency, I believe foreign investor sentiment toward Indonesia’s capital market will certainly improve,” he said.

Indonesia’s stock market has begun to show signs of recovery in the second week of February.

After falling 11.78% over four trading days (28 January – 2 February 2026), Jakarta Composite Index (JCI) indicated a rebound, rising 4.89% from its recent low over the following 2 weeks through 18 February 2026.

On the other hand, investors remain concerned about a widening fiscal deficit, which is seen as potentially breaching the 3% of GDP threshold, driven by substantial government spending on President Prabowo’s flagship programmes, such as Free Nutritious Meals (MBG) and the Merah Putih Village Cooperative.

Still citing Business Times, Bloomberg economist Chang Shu underlined the importance of fiscal policy clarity.

“Investors need clearer explanations regarding the fiscal cost and how the government plans to maintain fiscal discipline while rolling out large-scale support programmes. Such clarity is essential to sustaining confidence,” he said.

Pressure on the rupiah has also intensified, approaching Rp17,000 per US dollar, compounded by scrutiny over the independence of Bank Indonesia following the appointment of President Prabowo’s nephew, Thomas Djiwandono, as Deputy Governor.

Several international institutions have begun responding to these concerns. Moody's has revised Indonesia’s rating outlook to negative and warned of a potential downgrade if the deficit widens, the rupiah continues to weaken, or capital outflows increase.

Meanwhile, FTSE Russell has postponed its evaluation of Indonesia’s equity market due to uncertainty in free float calculations. However, S&P Dow Jones Indices will continue monitoring developments and proceed with its March 2026 rebalancing process.

Economists also caution that sustained market pressure and the risk of a credit rating downgrade could raise the government’s borrowing costs, with broader implications for the economy. (DH/ZH)