Prabowo faces investor revolt over Indonesia's economic path

For months, President Prabowo Subianto's moves to chip away at Indonesia's long-established economic guardrails have stoked anxiety in markets.

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This week's sudden rout suggests investor patience is wearing thin.

The former general has been causing unease with his populist spending measures, plans to dilute the central bank's independence and aggressive policies against foreign businesses like Apple. He fast-tracked laws to expand the role of the military too, triggering angry student protests in Jakarta.

The tipping point came on March 18, when rumours spread that Finance Minister Sri Mulyani Indrawati, who has kept a tight rein on spending during her cumulative 14 years in office, would resign. The stock market dropped the most in three years on the day, prompting government officials and Dr Sri Mulyani herself to come out, one by one, to dispel the speculation. Bank Indonesia was forced to step in to protect the rupiah, Asia's worst-performing currency in 2025.

The rumours have "renewed fears of reformists being purged and were a catalyst for exposing all the economic problems the country is facing", said Mr John Foo, founder of Valverde Investment Partners.

While there has been some reprieve in the markets since then, investors remain rattled by Mr Prabowo's policy moves, coming at a time when South-east Asia's biggest economy is also grappling with US President Donald Trump's tariff threats and waning demand from China for raw materials.

Top of mind for investors is the fiscal outlook. Once cited by Morgan Stanley as one of the "Fragile Five" markets prone to wild swings in foreign sentiment, Indonesia has steadily improved its credibility with investors, thanks to prudent economic management that has lifted its credit rating out of junk status.