Blood On The Trading Floor In 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.

Sign up for one of our free newsletters

• The Daily Report Start your day right with Asia Times' top stories
• AT Weekly Report A weekly roundup of Asia Times' most-read stories

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.”

Sign up here to comment on Asia Times stories Or Sign in to an existing accoun

Thank you for registering!

An account was already registered with this email. Please check your inbox for an authentication link.

• Click to share on X (Opens in new window)
• Click to share on LinkedIn (Opens in new window)
• Click to share on Facebook (Opens in new window)
• Click to share on WhatsApp (Opens in new window)
• Click to share on Reddit (Opens in new window)
• Click to email a link to a friend (Opens in new window)
• Click to print (Opens in new window)