JAKARTA – The Jakarta Stock Exchange forced an emergency trading stop at 11:19 local time today after the Jakarta Composite Index (IDX Composite), an index of all stocks listed on the exchange, dropped by as much as 7.1%, the market’s biggest intraday slump since September 2011.
While stocks rebounded somewhat, closing down -3.8% at the end of the trading day, the market fall underlines growing fear among investors about the direction of economic policy under President Prabowo Subianto.
Indonesian stocks are now some of the world’s worst performers in 2025. Since Prabowo’s inauguration on October 20 last year, many of Indonesia’s blue-chip stocks have suffered sharp declines.
Something appeared to snap today in what one analyst termed “a good old-fashioned panic”, with the index collapsing in a way not seen during the pandemic. The last time the exchange was forced to temporarily suspend trading because of a 5% or more drop was in late 2020.
Foreign cash has also been flowing rapidly out of the country. As of March 13, the stock market had experienced a year-to-date net sell of 22.21 trillion rupiah (US$1.35 billion), according to Bank Indonesia.
The central bank’s weekend report showed that 10.5 trillion rupiah had left the country last week alone due to foreign dumping of stocks and government securities.
The market sell-off follows months of weak economic performance. In January, Bank Indonesia downgraded its economic growth forecast for 2025 to 4.7%-5.5% from 4.8%-5.6% previously.
It also unexpectedly cut benchmark interest rates from 6% to 5.75% despite the prolonged slide in the rupiah vis-a-vis the US dollar.
Consumer spending, which accounts for more than half of Indonesia’s economic activity, has weakened since late 2024. In February, Indonesia experienced its first bout of deflation in over two decades, with the consumer price index falling 0.09%.
A decline in global commodity prices has hit the other engine of Indonesia’s growth. Prices of coal, one of Indonesia’s most important exports, have slumped on global markets. The same goes for nickel, which has emerged as an important new export in recent years.
Meanwhile, confidence in the government’s ability to handle these issues appears low. On the campaign trail last year, Prabowo touted a variety of populist policies focused on domestic processing of raw materials and spending on welfare programs.
The unexpected decision of the country’s totemic finance minister, Sri Mulyani Indrawati, to stay on under Prabowo briefly calmed nerves, with many investors hoping she would help keep the government’s economic policy orthodox.
Those hopes, however, have been mostly dashed. Prabowo’s government has recently embarked on a drastic slashing of government spending – including a 75% cut to the infrastructure budget.
The money is being reallocated to two pet projects – a free school lunch program and to provide capital for Daya Anagata Nusantara Investment Management Agency, aka Danantara, the government’s new holding company for state-owned enterprises (SOEs).
Danantara, in particular, has stoked stock market worries. SOEs play a huge role in the Indonesian economy, with assets equivalent to 55% of GDP in 2023. Danantara now controls seven of the largest SOEs – three banks, oil company Pertamina, mining company MIND ID, electricity company PLN, and telecoms company Telkom Indonesia.
The fall in the stock prices of the three state-owned banks – Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia – all accelerated after the fund was launched amid concerns about governance. The fund’s CEO, Roesan Roesalni, also serves as minister of investment.
With the new holding company placing the companies beyond parliamentary oversight and redirecting their dividends away from the finance ministry, there are worries the fund might be treated as an enormous piggy bank for government pet projects.
Other policies have also hit sentiment. Government tax collection has dropped sharply due to hiccups in the roll-out of a new system. Meanwhile, government plans to increase mining royalty rates have sparked protests from companies already facing declining global commodity prices.
Rumors that Finance Minister Sri Mulyani may soon resign due to differences with the president have raised worries more economic unorthodoxy may be on the agenda. Thomas Djiwandono, the deputy finance minister and Sri Mulyani’s likely successor, is Prabowo’s nephew.
Meanwhile, the government has floated writing off a variety of loans to MSMEs held by state-owned banks and pushing them to lend to cooperatives.
“People are increasingly thinking there’s no strategy to grow the middle class,” said one trader who requested anonymity. “Only spending on free this and free that. Maybe people will dump government bonds as well if there’s no real state budget management.”
