Airlangga says MSCI proposal will not disrupt Indonesia's economy

Economic assurances amid market losses

Airlangga spoke after an October 21 cabinet meeting at the State Palace in Jakarta marking two years of President Prabowo Subianto's administration. All members of the Red and White Cabinet attended. Airlangga said his economic update showed Indonesia grew 5.45% in the first half of 2026, while inflation stayed within the target of 2.5%, plus or minus 1 percentage point.

He pointed to a manufacturing PMI reading of 52, consumer confidence of 118 and foreign exchange reserves totaling $146.3 billion as further evidence of strong macroeconomic conditions. He also described the real sector as relatively strong and said food supplies remained adequate.

"There has indeed been some turbulence in terms of sentiment, as discussed yesterday, including the MSCI issue, but this is not something that will disrupt the economy as a whole," Airlangga said. He remained confident that the government could meet its growth target, citing close coordination among ministries and institutions over the past two years.

Prabowo also addressed the MSCI concerns at the meeting. "I will simply say this to MSCI: the Indonesian nation will not be afraid and will not be intimidated," he said.

The Jakarta Composite Index ended Wednesday up 0.94% at 5,328.36, though it was still down 39.09% for the year. The rupiah weakened again, trading beyond 18,000 per U.S. dollar, with its year-to-date depreciation reaching 8.05%.

That session followed a sharp sell-off on October 16. According to The Business Times, the benchmark fell nearly 12%, prompting a trading halt and recording its largest one-day decline since January 1998. At that point, its losses for the year exceeded 40%.

Consultation focuses on market access and enforcement

MSCI opened its consultation on October 15, 2026, proposing to move the MSCI Indonesia Indexes from Emerging Market to Standalone Market status. Its announcement sets April 30, 2027, as the deadline for market feedback and says a final decision will come on or before June 30, 2027.

The index provider attributed the proposal to investors' concerns about whether the Indonesian stock market is investable. It cited shareholding structures that remain opaque, suspected coordinated trading and insufficient evidence of meaningful enforcement despite reform announcements.

Indonesian authorities have announced more detailed investor classifications, disclosure requirements for shareholders owning more than 1%, High Shareholding Concentration reporting and a roadmap toward a 15% minimum free float. MSCI acknowledged those measures but said institutional investors want consistent implementation and evidence that the changes produce a sustained, material impact.

Meanwhile, MSCI will maintain its existing freeze on certain index changes for Indonesian securities until further notice. It will not raise Foreign Inclusion Factors or Number of Shares, add securities to the MSCI Indonesia Investable Market Index, or move securities upward between size-segment indexes.

Brokerage estimates $3 billion in passive outflow risk

Mirae Asset Sekuritas Indonesia estimated that reclassification to Standalone status would put about $3 billion in passive outflows at risk. In its MSCI update, the brokerage said the freeze and nine months of deletions had already reduced Indonesia's weight in the MSCI Emerging Markets index from 1.2% before the freeze to about 0.4%.

The brokerage also reported a decline in foreign ownership of the Jakarta Composite Index, from 43.9% to 39.7%. It identified large banks, Telkom (TLKM), Astra International (ASII) and United Tractors (UNTR) as the most exposed: foreign portfolio funds hold 46% to 53% of their free float, compared with roughly 20% across the market.

How Indonesia's proposed reclassification compares

If the proposal proceeds, Indonesia would become the first Asia-Pacific market with MSCI Standalone status, The Business Times reported. Argentina, Nigeria, Ukraine, Zimbabwe and Lebanon are among the markets already in that category.

Mirae highlighted how quickly Indonesia had reached this stage: fewer than nine months separated the index freeze from the Standalone proposal, compared with close to four years for Nigeria. Nigeria was reclassified in February 2024 and Argentina in November 2021; neither has returned to Emerging Market status, the brokerage noted.

Mirae also contrasted Indonesia's treatment with Turkey's. Although Turkey was flagged for similar concerns about coordinated trading, it was placed under an index freeze with a June 2027 deadline rather than becoming the subject of a reclassification proposal.