Fears grow after Indonesia stock rout

Fund managers say things may get worse

- CLAIRE JIAO CHANDRA ASMARA ABHISHEK VISHNOI

A worker wipes a handrail near the reflection of an electronic board displaying stock information at the Indonesia Stock Exchange (IDX) in Jakarta on Friday.

(REUTERS)

One of the biggest selloffs in Indonesia since the Asian Financial Crisis in 1998 is deepening worries among investors about where President Prabowo Subianto is taking Southeast Asia's biggest economy.

A warning by MSCI Inc last week about Indonesia's investability triggered the two-day rout. While the benchmark Jakarta Composite Index pared losses Thursday after regulators pledged measures to address the index compiler’s concerns, fund managers including Aberdeen Investments and Valverde Investment Partners are expecting things to get worse for the nation’s equities.

Underpinning the concerns are moves by the former general — a protege of ousted dictator Suharto — to shoehorn the president's nephew into the top leadership of the central bank not long after the removal of Sri Mulyani Indrawati, an internationally respected economist, as finance minister. The government earlier this month reported its budget shortfall surged to its highest in more than two decades, apart from the pandemic years, as Mr Prabowo pursued his social spending plans.

The Indonesian leader is also expanding the state’s role in the economy through Danantara, a sovereign wealth fund he formed last year that reports directly to him. Some $5 billion in annual dividends from Indonesia’s state enterprises, which would otherwise flow into the national budget, have been funnelled into Danantara already. Another state firm — led largely by retired military officers — is taking charge of palm oil plantations seized by regulators over the past year on alleged infractions or misuses, covering an area roughly the size of Switzerland.