Global index provider MSCI delivered another negative verdict on the Indonesian economy yesterday, citing concerns over market accessibility, particularly the lack of transparent and reliable inventory data.
In its annual Global Market Accessibility Report, MSCI lowered Indonesia’s information flow benchmark to negative, reflecting “structural issues related to opaque shareholding structures and concerns over coordinated trading.”
The index provider said these issues “undermine adequate price formation” and impact investors’ ability to “assess true free float and rely on observed market prices for portfolio construction and index replication.”
The move comes just a week before MSCI announces its decision on whether to downgrade Indonesia’s market classification to frontier status, a move that could trigger billions of dollars in capital outflows.
MSCI threatened to downgrade Indonesia’s rating in January due to a number of transparency issues in its stock market, including high concentration of ownership in certain companies and limited “free floating” of tradable shares. The move caused a plunge in Jakarta’s benchmark stock index, which fell about 8%, wiping out $80 billion in market value. Although it subsequently recovered, Reuters reports that the index fell 29% in 2026 and that foreign investors have sold about $3.65 billion worth of Indonesian stocks so far this year.
In response to MSCI’s threat, the Indonesian government announced a long list of proposed reforms. Among these was the doubling of the minimum float for listed companies, to 15 percent. Top executives of the exchange and the regulator also resigned.
In April, MSCI expanded its review of Indonesian markets to assess a series of reforms announced by the Indonesian government. The following month, it removed six companies from its Indonesian index and another 13 companies from its list of small-cap indices, causing the stock market to fall further.
Transparency concerns expressed by MSCI, whose role as the primary benchmark for institutional investors gives it considerable power over emerging economies, add to broader concerns about President Prabowo Subianto’s management of Indonesia’s economy.
Since coming to power in October 2024, Prabowo has pursued high-spending populist policies, including a multibillion-dollar free lunch program, that have widened the budget deficit to its legally mandated ceiling of 3% of GDP. The former general also increased state involvement in the Indonesian economy in an effort to maximize the country’s output in natural resources and international trade.
These policies, along with the firing of respected Finance Minister Sri Mulyani Indrawati last September, have destabilized investors and undermined Indonesia’s hard-earned reputation for fiscal conservatism. A microcosm of this decline in investor confidence has been the decline in the value of the rupee, which has depreciated by more than 14 percent since Prabowo took office. After hitting record highs against the U.S. dollar this year, the currency is now worth less against the U.S. dollar than during the 1997-1998 Asian financial crisis.
In March, Moody’s and Fitch announced downgrades to Indonesia’s rating outlook, with the latter citing “increasing political uncertainty and the erosion of the coherence and credibility of Indonesia’s policy mix” and the “increasing centralization of decision-making power”.
Although Indonesian officials remain confident that the promised reforms will be enough to avert the worst, a negative verdict from MSCI next week would further deepen the challenges facing the Indonesian economy. A downgrade to “frontier market” states would force passive index funds to sell billions of dollars of local assets, causing a bloodbath in Indonesia’s stock markets and likely pushing the rupiah to new lows.