Indonesia’s Stock Market Crashes 7 per cent – What’s Behind the Biggest Drop in a Decade?

Indonesia’s Market in Freefall: Rising Debt, Weak Consumer Spending, and Global Pressures Shake Investor Confidence

Indonesia's equity market faced a sharp downturn on Tuesday, with the Jakarta Composite Index (JCI) tumbling 7.1 per cent, marking its steepest drop in over a decade. The sell-off reflects rising concerns about weakening consumer spending and the impact of President Prabowo Subianto's expansive fiscal policies.

The market slide triggered a 30-minute trading halt after the index fell beyond the 5 per cent threshold, a measure last seen during the pandemic era. However, once trading resumed, the losses deepened, pushing the index to its lowest point since 2021. The rupiah also continued its decline, weakening 0.3 per cent against the US dollar, making it Asia's worst-performing currency this year.

Mounting Economic Pressures

Investor sentiment has been rattled by declining household consumption and falling consumer confidence, which dropped for the second consecutive month in February, according to Bank Indonesia. The country's middle class is under strain due to weakening employment opportunities and a slowdown in manufacturing, exacerbated by a flood of low-cost imports from China.

Bank Indonesia, in a surprise move earlier this year, reduced interest rates to spur growth. However, the central bank also lowered its 2024 GDP forecast to 4.7 per cent - 5.5 per cent, down from 4.8 per cent - 5.6 per cent, signaling caution over economic prospects. Investors are now closely watching the upcoming monetary policy meeting, with expectations that the central bank might announce another rate cut to support the fragile economy.

Fiscal Strain and Market Reaction

President Prabowo's ambitious social programs, including a USD 28 billion annual free meals initiative for schoolchildren and pregnant women, have added pressure to the nation's fiscal resources. These expenditures have already contributed to a rare early-year budget deficit and prompted austerity measures impacting infrastructure and other sectors.

Reports of potential changes in key government positions, including the possible resignation of Finance Minister Sri Mulyani Indrawati, have further unsettled the market. While the government denies these reports, investor anxiety remains high.

"The government’s social assistance programs may provide some relief, but the broader consumption recovery is expected to remain sluggish," noted Brian Lee, an economist at Maybank. Reflecting these concerns, Maybank has trimmed its 2025 growth projection to 5 per cent from 5.2 per cent.

Foreign Outflows and Industry Fallout

Foreign investors have already pulled approximately USD 1.65 billion from Indonesian equities in 2025, as a stronger US dollar and escalating global trade tensions drive capital outflows. The textile industry has been particularly hard-hit, with leading manufacturer Sritex shutting operations and laying off over 10,000 workers this month after filing for bankruptcy.

As uncertainty looms, the market awaits Bank Indonesia's rate decision on Wednesday, which may signal further interventions to stabilize the currency and restore investor confidence.

Disclaimer: The article is for informational purposes only and not investment advice.