Ria Fortuna Wijaya, Faisal Maliki Baskoro, Jakarta – Indonesia is not in crisis, but warning lights are flashing as fiscal pressures rise, investor confidence dampens, and the economy's much-touted resilience appears less secure.
Over the past three weeks, a cluster of negative signals has unsettled markets. Global index provider MSCI froze key index adjustments for Indonesian stocks, triggering temporary trading halts and capital flight. Credit rating agency Moody's followed by revising Indonesia's sovereign outlook to negative, while FTSE Russell postponed its planned March review of Indonesian equities.
The rupiah slid to a record low of Rp 16,985 per dollar on Jan. 20 and has hovered near the psychologically important Rp 17,000 mark, although it began to regain ground in the past week. The Jakarta Composite Index fell 6.94% in late January and dropped another 4.73% by Feb. 7, wiping out roughly Rp 705 trillion ($41.6 billion) in market value.
State budget deficit widened to 2.92% of GDP in 2025, close to the legal 3% ceiling. Tax revenue fell short of target, while much of the additional spending went to social programs rather than productivity-enhancing investment.
Each pressure might have been manageable on its own, but altogether, they have created a sense of crisis.
Teuku Riefky of the University of Indonesia described the pattern – rating pressure, market volatility, and potential capital outflows – as early warning signs of financial stress.
"These are early signs of a financial crisis. We must decide whether to pursue structural reforms or remain in denial," he said Wednesday at The Forum, hosted by B-Universe Media Holdings in Jakarta. He warned that a sovereign downgrade could trigger higher borrowing costs and a damaging fiscal cycle.
Moody's flags policy and governance risks
Moody's was blunt. The agency cited weakening policy predictability, warning that inconsistent signals and communication could erode investor confidence. It also highlighted fiscal risks from large programs, including free nutritious meals and subsidized housing, given Indonesia's narrow tax base.
Additional uncertainties include the governance of Danantara, the sovereign wealth fund, and potential liabilities from state-owned enterprises shifting onto the government's balance sheet. For now, Moody's maintained Indonesia's sovereign credit rating at Baa2, reflecting an investment-grade rating with moderate credit risk.
Other rating agencies are watching closely. Fitch is due to review Indonesia next month, with S&P expected to follow. Few expect an upbeat tone.
Veterans of past upheavals urge speed. Mohammad Ikhsan, a former senior official and now academic, said that Indonesia has endured repeated shocks – 1998, 2008, and the pandemic. "If we handle it early, the payoff is high, and the impact can be minimized. One to two quarters can restore stability," he said.
Stability vs. strength
The government remains confident despite the red flags. Economic growth reached 5.11% in 2025, slightly below target but broadly in line with recent years, with a stronger-than-expected fourth quarter. President Prabowo Subianto has set a goal of lifting growth to 8% by 2029.
Some buffers remain. External debt stood at a manageable 29.3% of GDP in November, bank lending grew nearly 10% last year, and the unemployment rate declined. Yet headline figures have done little to reassure economists, who caution that stability is not the same as strength.
"What matters is sustainability. A 5% growth in 2018 feels very different in 2026," said Wijayanto Samirin of Paramadina University, stating that consistent growth does not necessarily translate into quality jobs.
Investor confidence matters more than public approval, economists say.
President Prabowo's approval remains near 80%, but losing investment-grade status would be difficult to recover and could trigger capital outflows. "Sovereign ratings affect everything," said Dipo Satria Ramli of the Indonesian Economists Alliance (AEI). Another AEI economist, Bernardus Marcello Agieus, added that Moody's key message is about reducing uncertainty and improving policy coherence and communication.
Government response and communication strategy
In response, President Prabowo plans to address Moody's concerns at the Indonesia Economic Outlook forum on Friday. Chief Economic Affairs Minister Airlangga Hartarto said Thursday all major rating agencies continue to place Indonesia firmly in investment-grade territory despite Moody's negative outlook. The forum, he added, will provide a fuller explanation of fiscal strategy, revenue prospects, and the government's plans for Danantara.
Danantara said on Tuesday that Indonesia would improve communication ahead of assessments. "We have Fitch coming next month, as well as S&P. Our job is to communicate well. We have wonderful stories to tell. This is one of our weaknesses; we don't go outside and tell them," said Chief Investment Officer Pandu Sjahrir in Jakarta.
According to Pandu, Indonesia has "wonderful stories to tell" – from growth and low inflation to anti-corruption efforts. S&P currently rates Indonesia "BBB" with a stable outlook, reflecting adequate capacity to meet financial commitments, while Fitch has given a similar assessment.