Indonesia's Prabowo Defiant Over MSCI Double Downgrade Proposal

Indonesia's President Prabowo Subianto told the cabinet that Indonesia would resist what Prabowo described as intimidation by MSCI over a proposed market downgrade. Prabowo declared that Indonesia would not retreat or surrender and was prepared to make sacrifices. MSCI said on October 15 that the index provider was considering moving Indonesia to standalone status, a category that includes Argentina, Nigeria and Ukraine. MSCI cited persistent suspected coordination in trading and insufficient evidence of meaningful enforcement.

Standalone status would remove Indonesia from MSCI's main global and regional indexes. A downgrade could cause billions of dollars in investment outflows because many investors base funds on MSCI indexes. MSCI will make a final decision by the end of June 2027.

Indonesia has faced a possible downgrade for most of 2026. MSCI said in January that the index provider was considering moving Indonesia from emerging market status to frontier status, one level lower. That proposed change threatened outflows of as much as $13 billion in passive investments. The latest proposal would place Indonesia below frontier status and would likely cause still larger outflows. The Jakarta Composite Index has dropped more than 10% since MSCI announced the proposal. The benchmark has lost nearly 40% this year.

Prabowo is entering the third year of Prabowo's presidency. A Saiful Mujani Research and Consulting poll cited by Reuters put Prabowo's approval rating at 44.5%, chiefly because of dissatisfaction with the economy. The same polling organization measured Prabowo's approval at 81% in November. More than six in 10 Indonesians express dissatisfaction with the free meal program, a flagship social policy of Prabowo's administration. Seventy-one percent doubt that Prabowo's village cooperatives policy will succeed. The policy envisages hubs in roughly 80,000 communities for distributing basic goods, providing savings services and delivering other rural services.

Wildfires in Indonesia have produced haze across much of Southeast Asia, placing Singapore and Kuala Lumpur among the world's most polluted cities. Singapore is threatening legal action against companies responsible for the fires. Prabowo recently acknowledged a willingness to accept foreign assistance in controlling the fires. However, Prabowo also objected to criticism at Wednesday's cabinet meeting, saying Indonesia was patient and polite but would not accept endless insults. Indonesians are protesting Prabowo's administration with increasing frequency. Reuters reported that more than 9,000 police officers were deployed throughout Jakarta this week before events commemorating Prabowo's second year in office.

The market upheaval has also developed into a diplomatic dispute. Former trade minister Muhammad Lutfi accused Singapore's state investors Temasek and GIC of pressuring MSCI to provoke a sell-off so foreign investors could buy strategic Indonesian assets cheaply. Temasek and GIC denied the accusations, and a Temasek executive described the claims as "patently untrue". Lutfi served under presidents Susilo Bambang Yudhoyono and Joko Widodo. Jeffrey Hendrik, president director of the Indonesia Stock Exchange (IDX), rejected the conspiracy allegations on October 20. Hendrik said the exchange had consistently regarded global index providers as independent.