(Bloomberg) — It wasn’t supposed to unfold this way. Just over a year ago, optimism about Indonesia was running high, with investors expecting Prabowo Subianto to extend former President Joko Widodo’s pro-business policies.
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Instead, they are now grappling with shifting priorities as Prabowo’s costly welfare plans strain the nation’s finances and threaten to sap economic activity. These concerns contributed to a rout in the nation’s stocks on Tuesday, sparking the first trading halt since the pandemic and prompting the central bank to defend the rupiah.
“People were expecting the new president to continue on with that agenda, and instead they have seen a transition toward a new priority,” said Thea Jamison, managing director at Change Global Investment LLC. “And that priority is still yet to be truly defined and articulated.”
The turmoil has added to doubts about the investability of Southeast Asia’s largest equities market, which is down 21% from a September peak. Tuesday’s action was also fueled by speculation over veteran Finance Minister Sri Mulyani Indrawati’s potential resignation.
While Indrawati vehemently dispelled the rumors, the speculation came at a precarious moment. There are concerns about the health of Indonesia’s public finances, including a early-year budget deficit and a 20% drop in state revenues. The outlook remains uncertain amid unclear budget allocation plans and a lack of new revenue-generating measures.
Investors are now being forced to weigh up whether the selloff was a blip or a sign of things to come.
The benchmark Jakarta Composite Index was around 1% higher on Wednesday, erasing a brief selloff at the market open. Investors also got a bit of good news from the country’s securities regulator, which eased rules on stock buybacks for the next six months.
But Indonesia’s stock market remains one of the worst performing in the world, and investors still have troubling questions about the approach of the current government.
“Foreign investors are clearly…
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