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Jakarta has a 1998 smell in the air as investors fled Indonesia's currency and stock markets.
The outflow was far less than those who overthrew the suharto at the time. His downfall amid the chaos of the Asian financial crisis. Large-scale street protests forced the officers to resign in May 1998.
However, many voters who elected Prabowo Subianto, former Sun-woman in Suharto, suffered some serious remorse from buyers. Prabowo is also a soldier-ex-person. Sadly, his management of the Southeast Asian economy will determine control over the reforms to improve competitiveness.
Prabowo’s plan to water the independence and populist spending policies of central banks shows that he knows nothing about the power behind the 1997-1998 collapse of Indonesia. His strong strategy advice for international companies like Apple Prabowo didn’t know that he operated in the most dynamic economic regions anywhere, and that foreign CEOs had many other options.
You might think that the collapse of 1Malaysia Development Berhad (1MDB) could have caused Prabowo to think three times to transfer ownership of the highest state-owned enterprises to the new sovereign wealth fund, which is reported directly to him. The same is true for expanding the role of the army and reversing the efforts of Suharto afterwards to reduce the economic role of the general.
Neither of these steps will position Indonesia better to withstand President Donald Trump’s trade war. They will not restore China's requirements for raw materials. They will be unable to fulfill Prabowo’s election commitments, accelerating from 5% today to 8%.
Prabowo’s feeling has been fighting the wrong battle since the Asian financial crisis, which has brought Rupiah to its weakest. Central banks scramble to put the floor under the currency through formal intervention.
“We expect investor sentiment in Indonesian risk assets may remain weak in the near term and are cautious about the fact that Indonesian corporate dollar bonds may see more volatility on negative headlines and overall macro issues,” said CreditSights analyst Lakshmanan R.
Global funds have dumped $2 billion in Indonesian stock this year. No wonder why, with Trump’s tariffs and the coming tariffs, threatening unprecedented headwinds at the worst moments of the global financial system.
Worse, the bull market in Washington's uncertainty emitting from Washington. Officials in Jakarta, Bangkok, Kuala Lumpur, Manila and elsewhere are unaware of the size, timing or ambitions of Trump's trade tax, which makes it impossible for fiscal policy makers and central banks to formulate strategies.
As far as Indonesia is concerned, the most important thing is the preexisting conditions. From 2014 to 2024, Prabowo’s predecessor Joko Widodo made some key reforms on the scoreboard. While leading projects on rapid economic growth and transformative infrastructure, Vidodo has also achieved more than his predecessors to eradicate extreme poverty of 281 million people. Under Widodo, Indonesia has weathered the Covid-19 crisis better than many of its peers.
However, critics claim that Vidodo has become too easy in dynasty politics, old sponsorship and changing laws to benefit his family. Of course, he opened the door to an unpredictable successor to the armed forces.
This successor no longer enjoys the benefits of global investor doubt. At the end of 2024, overseas funds converted Prabowo’s commitment to turbocharged economic growth and attracted increased investment. Now, concerns about Indonesia's fiscal prospects and potential democracy wandering backwards have led capital out of its assets.
In the first five months of Prabowo, the benchmark Jakarta Composite Index fell nearly 20%, while Rubiya tested 26 years.
Indonesia recently adopted a foreign exchange “retention” program that requires natural resource exporters to deposit 100% of their currency income into a special account of the National Bank for 12 months. Such bidding supports currency stability and includes market volatility is rarely a sign of confidence. Fitch Rating analysts observed that “Indonesia’s external liquidity – measured by the ratio of liquid external assets to liquid external liabilities – is still weaker than many of its “BBB” peers.”
Investors may be more confident in Prabowo’s reform opportunities if investors spend more time cutting down on the traditional Chinese tape festival, creating jobs for Indonesia’s young population and shifting the high-end economy to high-value-enhanced industries rather than strengthening control over the economy.
Indonesian banks will purchase state bonds through the secondary market, and investors are worried that central banks will fund public spending. This so-called “debt monetization” rarely ends for developing countries. Thus, the turbulent breath of 1998 has paid off a country that gets better from its leaders.
