SINGAPORE/LONDON: Indonesian President Prabowo Subianto is losing investors' trust, and his plans to grow the economy are at risk as the currency falls sharply.
Since taking office in 2024, the former special forces commander has run a disorderly government. He has promised free meals for millions of schoolchildren and has moved away from years of careful spending to push for faster growth.
However, rising global energy costs and several unusual policy decisions have shaken investor confidence. These include putting commodity exports under a large state fund that reports directly to him and giving the central bank new roles focused on jobs and growth.
As a result, Indonesia is no longer seen as a strong emerging market. Financial indicators now suggest the country could lose its investment-grade credit rating.
In 2026, Indonesia's currency and stock market are among the worst performers in the world. The rupiah has fallen more than eight percent this year to a record low of 18,190 per U.S. dollar, and its recent drop has been the steepest since 2020. Its decline is worsening the situation by causing more investors to sell.
Experts say the country is facing a serious confidence crisis due to concerns about governance. The falling currency is reducing returns for foreign investors, increasing inflation, tightening financial conditions, and slowing economic growth.
This is happening despite a recent interest rate hike and heavy use of foreign exchange reserves to support the currency. The effects are spreading across markets. Foreign investors have pulled billions out of stocks, and their share in government bonds has dropped sharply to a near 20-year low.
Some analysts warn of a "doom loop," in which continuous outflows weaken the currency, reduce liquidity, and hurt asset prices, potentially slowing infrastructure and growth plans.
Credit ratings are also at risk. If downgraded, borrowing costs would rise, and investors might be forced to sell. Meanwhile, global index provider MSCI is reviewing market transparency, though a major downgrade is seen as unlikely. Rating agencies have already turned negative on Indonesia's outlook.
The situation has been made worse by higher energy prices linked to global conflict, which are putting pressure on the economy and government budget due to fuel subsidies. Despite this, Prabowo is continuing with expensive policies.
New laws have also raised concerns, as they give parliament more power over the central bank and add economic growth to its responsibilities, potentially threatening its independence. Prabowo has also appointed his nephew to a senior role at the central bank and plans to bring commodity exports under a state fund he created.
Analysts say the biggest worry is that policymaking is becoming less clear and less efficient, which is making investors more cautious.
