Foreign investors sell Indonesia as Prabowo faces backlash

{"text":[[{"start":11.75,"text":"Foreign investors are selling Indonesia’s stocks, bonds and currency in one of the biggest liquidations of its assets in decades, as they question President Prabowo Subianto’s populist and interventionist policies in south-east Asia’s largest economy."}],[{"start":26.65,"text":"Foreigners have sold a net $3.9bn worth of stocks this year, the largest sell-off since at least 1996, according to an FT analysis of exchange data. That has contributed to a 32 per cent slump in Indonesia’s benchmark stock index — which is the world’s worst-performing equity market this year. "}],[{"start":46.8,"text":"The rupiah is slightly above an all-time low against the US dollar — much lower than levels seen during the Asian Financial Crisis in the late 1990s, a period characterised by massive capital flight, currency devaluations and recession. Indonesia was one of the hardest-hit countries."}],[{"start":64.8,"text":"With a 7.3 per cent decline this year, the rupiah is one of Asia’s worst-performing currencies, rivalling only India’s rupee. Bond prices have fallen to multi-year lows."}],[{"start":null,"text":"

"}],[{"start":null,"text":""}],[{"start":77.05,"text":"“Indonesia has done a lot of good work over the years in establishing a hard-won belief and trust in key financial and policy institutions,” said Alan Siow, co-head of emerging market corporate debt at asset manager Ninety One. “Unfortunately, this confidence is now fragile and fraying, and if lost may take a longer time to rebuild.” "}],[{"start":96.25,"text":"Prabowo, a former general, has spooked investors by launching a series of expensive welfare programmes and imposing more state control in the country’s critical commodities sector since coming to power in late 2024. "}],[{"start":108.8,"text":"His $15bn free school meal scheme has been mired in corruption allegations and criticised for ineffective implementation, leading investors and economists to question the government’s policies."}],[{"start":121.45,"text":"In Prabowo’s quest to boost annual growth to 8 per cent from the current 5 per cent, analysts say he has also undermined the independence of institutions such as the central bank. This month, parliament passed a law that expanded the central bank’s mandate to include job creation and supporting economic growth in addition to supporting the rupiah. Prabowo had earlier appointed his nephew to the bank’s board. "}],[{"start":146.3,"text":"Last year, Prabowo fired long-term finance minister Sri Mulyani Indrawati, a staunch advocate of fiscal discipline, and replaced her with Purbaya Yudhi Sadewa, who is more pro-growth."}],[{"start":159.3,"text":"The administration is doing too much too quickly without effectively communicating its policies to the market, said Fakhrul Fulvian, chief economist at Trimegah Sekuritas. “Predictability is the biggest problem,” Fakhrul said. "}],[{"start":172.8,"text":"The war in the Middle East has also exacerbated fiscal concerns. "}],[{"start":177.15,"text":"Indonesia heavily subsidises fuel and Jakarta has promised not to remove the subsidies to protect a population that is already struggling with higher costs and weaker purchasing power. But that is putting pressure on the fiscal deficit, which is nearing a 3 per cent self-imposed legal cap. "}],[{"start":195.3,"text":"“The [higher] oil prices have exaggerated the fiscal challenge and the external challenge,” said Emily Fletcher, co-manager of the BlackRock Frontiers Investment Trust, which has investments in Indonesia. “I think what the markets are looking for is the bottom line of whether they can achieve their fiscal targets.”  "}],[{"start":213.10000000000002,"text":"Foreign holdings of government securities are near 12.5 per cent — their lowest share since at least 2009. Foreign outflows from bonds have totalled $648mn so far this year — the worst since 2022. "}],[{"start":227.65000000000003,"text":"Indonesia’s forex reserves fell to a near two-year low of $144.9bn last month. The decline in reserves is the sharpest decline in 13 years as the central bank spends heavily to defend the rupiah."}],[{"start":null,"text":""}],[{"start":240.75000000000003,"text":"More volatility is likely in the coming weeks."}],[{"start":244.35000000000002,"text":"Later this month, index provider MSCI will decide whether Indonesia retains its “emerging market” classification or is downgraded to “frontier”, a move that could trigger further sales. It has cited concerns over high shareholding concentration and lack of transparency in the markets, and has already removed 18 Indonesian stocks from its indices."}],[{"start":265.65000000000003,"text":"Rating agency S&P is also widely expected to release its review of Indonesia this month. Moody’s and Fitch have recently downgraded Indonesia’s outlook — though not the rating — over policy uncertainty, centralisation and weak governance.  "}],[{"start":280.65000000000003,"text":"There are early signs that the government is heeding investor concerns. "}],[{"start":285.50000000000006,"text":"At a parliamentary hearing on Wednesday, finance minister Purbaya said the government will work closely with the central bank to co-ordinate fiscal and monetary policies that he said are “expected to increase market confidence”. This week, the central bank increased its benchmark interest rate in an off-cycle move, helping the rupiah and the stock market recover some of the recent losses. "}],[{"start":307.30000000000007,"text":"Bank Indonesia said on Friday that investors have responded positively to the rate hike, with the central bank seeing increased foreign inflows in bonds issued this week. BI will continue to defend the rupiah and “maintain the attractiveness of domestic financial instruments to support foreign capital inflows”, a spokesperson said.  "}],[{"start":327.20000000000005,"text":"For now, investors are staying cautious. "}],[{"start":330.1,"text":"“Investors are concerned over the administration’s undermining of institutions needed for building confidence and stability. And they are not convinced that the execution skills are there [for the big policies],” said Edward Gustely, managing director of Penida Capital."}],[{"start":346,"text":"“Investors are taking a pregnant pause at this point.”"}],[{"start":null,"text":""}],[{"start":356.05,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1781249608_4662.mp3"}