📒 Quick Take: Indonesia’s Fight Against the Tide
Rather than paying heed to a growing chorus of warnings, Indonesia’s policymakers seem to be digging their heels in.
Echoing Moody’s, local rating agency PEFINDO said the Indonesian government should work towards restoring investors’ confidence.
Index provider FTSE Russell is postponing its March review for Indonesia.
A spike in Indonesian bond yields may complicate sovereign fund Danantara’s plan to sell its own notes to offshore investors.
Rather than paying heed to a growing chorus of warnings, Indonesia’s policymakers seem to be digging their heels in.
On 5 February 2026, Moody’s cut its rating outlook to negative, saying that “reduced predictability and coherence in the policy making process, alongside less effective policy communication” had increased the risks to Indonesia’s policy credibility.
Echoing Moody’s, local rating agency Pemeringkat Efek Indonesia (PEFINDO)’s head of economic research division, Suhindarto, said that government officials should step up transparency, coordination and policy communication, especially related to the mandate and management of Indonesian sovereign fund Danantara.
Danantara is one of the concerns for investors because of uncertainty over its investment priorities and risk management, according to PEFINDO’s Suhindarto.
On 9 February, FTSE Russell said it would postpone its March index review, citing the potential adverse turnover and uncertainty in determining the accurate free float percentages of Indonesian securities. This came after another index compiler, MSCI, flagged last month that it may reclassify Indonesia to frontier market status.
After Moody’s lowered Indonesia’s outlook, Coordinating Minister for Economic Affairs Airlangga Hartarto said on 5 February that rating agencies lacked an understanding of the latest policies. Two days later, the minister told state news agency Antara that the government had asked Danantara to explain “recent institutional adjustments” to Moody’s.
The Investment Ministry’s senior advisor for investment equity and partnership, Tirta Mursitama, also said that Indonesia is sticking to its 8% growth target. “External ratings are important as an alert, but they do not change our economic fundamentals,” he told a Jakarta Globe discussion on 9 February.
It’s unclear how Indonesia plans to attract new investments when the seizures of mines and plantations have thrown the legal rights over these assets into question.
When reports emerged that Danantara was considering a takeover of the Martabe gold mine, Jardine Matheson Holdings’ executives initially told anxious investors that they didn’t know the status and were racing to find out, Bloomberg reported on 6 February. The Hong Kong-based conglomerate controlled the mine via its Indonesian subsidiary Astra International.
On 9 February, the Investment Ministry reportedly said it had met with Astra’s unit Agincourt Resources to discuss the legal and environmental aspects of the mining operations.
Staying Put
I wrote on 6 February that even though evidence was mounting that Indonesia’s free lunch program is fiscally unsustainable, President Prabowo Subianto has shown a pattern of not being able to tolerate perceived weakness.
Investigative news agency Tempo reported last year that the president refused to accept Finance Minister Sri Mulyani Indrawati’s resignation after her home was looted. I noted that the president likely sacked the former World Bank managing director on 8 September 2025 to preserve the narrative that he was in full control over her exit.
Since then, Indonesia has struggled to reverse the intensifying fund outflows amid worries about the growing centralization, widening fiscal deficit, as well as warnings from the rating agencies and stock indexes.
Despite the market volatility, Reuters reported on 10 February – citing three sources familiar with internal discussions – that the Prabowo administration has no intention of backing down on its broader promises, like the free meals plan and a pledge to lift growth to 8% from around 5%.
A refusal to change course may have ramifications for Indonesia.
On 14 January, I flagged that jitters over Indonesia’s expanding deficit may push up Danantara’s borrowing costs in the international markets given that it’s pegged to the sovereign.
While Danantara recently obtained a USD 1 billion-equivalent facility from more than two dozen foreign banks, I wrote that offshore bondholders are a key plank in the sovereign fund’s refinancing cycle as the loan would mature in three years.
The spike in the Indonesian government’s bond yields over the past few weeks may complicate Danantara’s plan to sell its own notes to foreign investors down the road.
While the sovereign fund indicated that it has recurrent access to low-cost onshore financing via its “patriot bonds”, I wrote on 1 February that the request to step up national service may deter some tycoons from committing to major domestic investments.
Indonesia’s economy has shown resilience over the years, but continually swimming against the tide could test its buffers.
Love your article, Eveline. Agree that our fundamentals are robust, but these heavy headlines may test the country’s economic foundations. Clarity on policy direction as well as credibility are keys to revive confidence. Happy to exchange views😊