Indonesia’s stock market took a dramatic hit on Tuesday, with the Indonesia Stock Exchange (IDX) Composite index plummeting 3.84% to close at 6,223 points. The sharp decline, which triggered a 30-minute trading halt earlier in the day after a morning drop of over 5%, marks the first such suspension since the coronavirus pandemic. While the market staged a partial recovery in the afternoon, the day’s losses extended a four-day losing streak, bringing the total decline to 6.9%. Since the start of 2025, the IDX Composite has shed 12.1%, driven by significant foreign investor sell-offs amounting to Rp 29.4 trillion (US$1.8 billion).
The turmoil in Jakarta stands in stark contrast to gains across other Asian markets. Hong Kong’s Hang Seng index, buoyed by China’s economic stimulus measures, surged 2.5% to a three-year high, while India’s Sensex and Japan’s Nikkei 225 rose by 1.5% and 1.2%, respectively. As regional equities flourish, Indonesia’s struggles have raised urgent questions about the country’s economic direction, fiscal policy, and political stability under President Prabowo Subianto’s administration.
A Perfect Storm of Economic and Political Concerns
Analysts point to a confluence of factors behind the market’s decline. Foreign investors recorded net sales of Rp 2.5 trillion (US$153 million) on Tuesday alone, reflecting growing unease over Indonesia’s economic fundamentals and policy environment. Fanny Suherman, head of retail research at BNI Sekuritas, highlighted the positive impact of China’s stimulus measures—aimed at boosting household income, consumer spending, and stabilising stock and real estate markets—on regional markets like Hong Kong. In contrast, Indonesia appears to be grappling with domestic challenges that are deterring investment. 
Global investment banks have recently downgraded their outlook on Indonesian equities. Goldman Sachs, in a report dated 7 March 2025, reduced its rating from “overweight” to “market weight,” citing weaker corporate earnings and tighter banking system liquidity. Similarly, Morgan Stanley downgraded the MSCI Indonesia Index from “equal weight” to “underweight,” noting that earnings revisions for Indonesian firms were among the weakest in the region. The bank also flagged declining medium-term returns on equity and market unease following the abrupt reversal of a planned VAT hike and sweeping budget cuts.
“Uncertainty over fiscal policy has weighed on the rupiah exchange rate and dampened corporate confidence,” warned Morgan Stanley economist Derrick Kam in a February report. “If policy uncertainty continues to linger, we think it will further pressure corporate sentiment.”
Fikri Permana, an economist at KB Valbury Sekuritas, echoed these concerns, suggesting that the downturn is less about fundamental economic collapse—unlike the pandemic-era crashes—and more about perceptions of government policy. “It’s more about concerns on policy, meaning that the government’s recent moves seem unfavourable or lacking independence in the eyes of investors,” he told The Jakarta Post on Tuesday.
Political Rumours Add Fuel to Market Jitters
Beyond economic policy, political developments are further unsettling investors. Rumours of a potential resignation by Finance Minister Sri Mulyani Indrawati, a widely respected figure credited with steering Indonesia through past financial challenges, have intensified market anxiety. Speculation suggests she could be replaced by First Deputy Finance Minister Thomas Djiwandono, President Prabowo Subianto’s nephew, a move that some analysts believe could signal nepotism and undermine confidence in independent policymaking.
“The market may not really like [this potential appointment],” Fikri Permana noted. When pressed on the rumours, Sri Mulyani remained noncommittal, stating on Tuesday, “For now, I remain focused on my duty to the state, fulfilling the trust of the President and managing the country’s finances in a professional manner.”
Adding to the political uncertainty, legislative proposals to revise the Indonesian Military (TNI) Law have drawn criticism for potentially undermining democratic principles. Critics argue that the changes could expand military influence in civilian affairs, a sensitive issue in a country with a history of military involvement in politics. Additionally, the creation of Danantara, Indonesia’s new sovereign wealth fund led by ministers and government-affiliated individuals, has raised questions about transparency and governance.
Andre Benas, head of research at BCA Sekuritas, described a “lack of direction” in policymaking as a key concern for investors. “The rumours surrounding Sri Mulyani’s potential resignation have only added [to market anxiety],” he told The Jakarta Post on Tuesday. The visit by House of Representatives Deputy Speaker Sufmi Dasco Ahmad, a senior figure in Prabowo’s Gerindra Party, to the IDX building on Tuesday afternoon—accompanied by several legislators—further underscored the political dimensions of the market’s turmoil.
Economic Fundamentals: Mixed Signals
Despite the stock market’s woes, not all economic indicators point to crisis. Indonesia’s manufacturing sector has shown resilience, with S&P Global’s Purchasing Managers’ Index (PMI) reaching its highest level in nearly a year last month. However, sluggish consumer demand and retail sales signal underlying weaknesses. Fikri Permana stressed that the current downturn does not mirror the severity of the pandemic-driven crash, where trading halts were necessitated by fundamental economic collapse. Instead, investor sentiment appears to be driven by policy missteps and political uncertainty.
Finance Minister Sri Mulyani sought to reassure markets by noting that, despite stock market outflows, Indonesia has attracted Rp 17.53 trillion (US$1.06 billion) in foreign capital inflows into government bonds since the start of 2025. She also urged managers of publicly listed state-owned enterprises (SOEs) and the newly formed Danantara superholding to prioritise professional and transparent management to restore public trust. Yet, her measured comments did little to quell speculation about her future role in the administration.
Regional Context and Global Implications
Indonesia’s market struggles stand out against a backdrop of regional optimism. Hong Kong’s tech-driven rally, underpinned by China’s stimulus measures, highlights the potential for decisive policy action to bolster investor confidence. Similarly, steady gains in India and Japan reflect a broader trend of recovery in Asian equities. For Indonesia, however, the combination of fiscal policy reversals, political rumours, and contentious legislative moves has created a perception of instability that contrasts sharply with its neighbours.
If the rumours of Sri Mulyani’s resignation prove true, or if fiscal and political uncertainties persist, analysts warn that foreign investor outflows could accelerate, further pressuring the rupiah and corporate earnings. Conversely, a clear signal of policy continuity and transparent governance—potentially through reassurances about the independence of key institutions—could help stabilise sentiment. For now, such outcomes remain speculative, with no confirmed evidence of immediate changes in leadership or policy direction.
Government Response and Investor Expectations
President Prabowo Subianto’s administration, which took office in late 2024, has faced criticism for economic policies that appear to prioritise short-term political considerations over long-term stability. The reversal of the VAT hike, while politically popular, has been interpreted by markets as a sign of indecision. Similarly, budget cuts across various sectors have raised concerns about the government’s commitment to infrastructure and social spending, both critical drivers of economic growth in Indonesia.
The establishment of Danantara, intended to manage state assets and attract foreign investment, could serve as a litmus test for the administration’s ability to balance political imperatives with economic pragmatism. If managed transparently, as urged by Sri Mulyani, it may reassure investors. However, if perceived as a vehicle for political patronage, it risks deepening mistrust.
Looking Ahead: A Critical Juncture for Indonesia
As Indonesia navigates this turbulent period, the interplay of economic policy and political stability will be crucial in determining whether the IDX Composite can recover its losses. For global investors, who have already offloaded billions in assets this year, clarity and consistency from Jakarta are paramount. The government’s ability to address concerns over fiscal policy, military law revisions, and leadership transitions will likely shape market sentiment in the coming weeks.
For now, the mood in Jakarta remains cautious. A man watching stock prices at the Indonesia Stock Exchange on Tuesday, captured in a photograph by AFP, symbolises the uncertainty gripping investors and citizens alike. With regional peers forging ahead, Indonesia stands at a critical juncture—balancing domestic political pressures against the demands of a globalised economy. Whether the Prabowo administration can restore confidence remains an open question, but the stakes for South East Asia’s largest economy could not be higher.
