📒 Quick Take: Indonesia’s Rating Leak
Indonesia’s institutional credibility is eroding on the international stage.
Fitch’s report lowering Indonesia’s outlook was broken by local media hours before its official release.
The lack of institutional coordination was also laid bare ahead of Indonesia’s biggest market rout in nearly three decades.
Indonesia’s institutional credibility is eroding on the international stage, putting at stake the hard-earned reputation built by past administrations.
I flagged on 21 January 2026 that President Prabowo Subianto was tightening his grip over the country’s financial guardians, state-owned enterprises (SOEs) and resources sector. I also wrote on 1 March that interest payments could become a bigger burden for Indonesia, especially if state revenue is not keeping pace with the increase in debt.
On 4 March, Fitch cut Indonesia’s outlook to negative while affirming its BBB rating, citing “increasing policy uncertainty and erosion of Indonesia’s policy mix consistency and credibility amid growing centralisation of policymaking authority.”
The rating agency also noted that government revenue weakened in 2025 due to subdued tax collection, near-complete reversal of a planned value-added tax increase, permanent diversion of SOE dividends (0.4% of GDP) to the new sovereign fund, Danantara, and tax refunds that might be temporary.
Fitch’s move was not surprising given that Moody’s already cut its rating outlook and S&P said that interest payments “very likely” exceeded the key threshold of 15% of government revenue last year. What’s more noteworthy was how Fitch’s report was broken by local media hours before its official release.
Rating agencies typically give a heads-up to issuers about an upcoming change, especially if it’s significant. Based on the sequence of events and a friend familiar with the matter, the leak likely happened from the Indonesian side, which suggests a breakdown of processes that wasn’t the norm under former Finance Minister Sri Mulyani Indrawati.
Like other emerging markets, Indonesia is a largely relationship-based society where individuals may play an outsized role in determining an outcome, but state institutions that deal with international agencies usually adhere to certain protocol to safeguard their credibility.
Tight Circle
I wrote on 18 February 2026 that Indonesia’s top leader appeared to be turning more insular, as his inner circle is tightly held by his younger brother Hashim Djojohadikusumo, his military schoolmate Sjafrie Sjamsoeddin, and influential politician Sufmi Dasco Ahmad.
Another figure who has the president’s ears is Cabinet Secretary Teddy Indra Wijaya, who’s also a lieutenant colonel, according to a second friend familiar with the matter and local reports.
While the president’s younger brother, Hashim, is a veteran businessman who’s familiar with the way capital markets work, the second friend noted that some technocrats are finding it harder to get their voices heard in the upper echelon.
The lack of institutional coordination was also laid bare ahead of Indonesia’s biggest market rout in nearly three decades.
Hashim – who’s the special envoy for climate and energy – told a climate forum last month that the president was angered when he learned that four letters sent by index provider MSCI querying the transparency and integrity of Indonesia’s capital markets went unheeded.
The president ordered the firings of officials who had failed to address MSCI’s concerns, with the heads of the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX) both resigning in the aftermath, Bloomberg reported.
Oil Jump
I wrote on 6 February that Indonesia’s free school lunch program – a centerpiece of the president’s election drive – was fiscally unsustainable. I also noted on 11 February that officials were not budging despite the rising tide of warnings over the perceived deterioration in the formation and communication of their policies.
On 13 February, the president reportedly said that he will proceed with his free meals program despite the “extraordinary” campaign mounted against it.
It was therefore extraordinary for Finance Minister Purbaya Yudhi Sadewa to tell Reuters on 3 March that Indonesia may scale back the free meals program to save around USD 6 billion.
The reason is because the jump in oil prices amid the Middle East conflict will likely test Indonesia’s fiscal deficit ceiling of 3% of GDP, which is considered a “third rail” for international investors.
“Assuming the worst case, if the oil price goes as high as USD 90 to USD 92 per barrel, in those conditions, without adjusting our current budget, the deficit will increase to around 3.6% of GDP,” the finance minister reportedly said.
“Of course, we’ll cut expenditure that creates the least impact to the economy.”
Staple Food
I flagged as early as February 2025 that the wave of layoffs in Indonesia’s labour-intensive manufacturing sector risked dampening consumption. Last week, local media reported that the Manpower Ministry is monitoring possible layoffs at the manufacturer of Mie Sedaap, Indonesia’s no. 2 instant noodle brand.
While the domestic market is dominated by the top brand, Indomie, the slump in demand for Mie Sedaap could be a warning sign because instant noodles are considered an affordable staple food in Indonesia.
CNA also reported that the exponential jump in peer-to-peer (P2P) debt over the years had led to a “vicious cycle” for borrowers. Outstanding P2P loans stood at almost IDR 90 trillion (USD 5.4 billion) as of September 2025, according to official data cited by CNA. This compares with IDR 74.5 trillion a year earlier and IDR 3.9 trillion in 2018.
Apart from the weaker consumption, Indonesia’s plan to cut the production quota for coal and nickel may also affect thousands of workers, with a potential spillover to the shipping, banking and insurance industries, Kompas reported on 3 March.
To weather the storm ahead, Indonesia will have to regain its credibility in the international markets.