(Bloomberg) – It was not intended to unfold like this. Just about a year ago, optimism about Indonesia was on high. Investors were hoping that Prabowo Subianto would expand former President Joko Widodo’s professional business policy.
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Instead, they are currently working on changing priorities as Prabowo’s expensive welfare plans burden the nation’s finances and threaten SAP economic activity. These concerns contributed to the country’s stock defeat on Tuesday, causing the first trading halt since the pandemic, urging central banks to protect the rupiah.
“People were hoping the new president would continue on that agenda. Instead, they have seen a transition to new priorities,” said Thea Jamison, managing director of Global Investment LLC. “And that priorities are still not truly defined and clarified.”
The Benchmark Jakarta Composite Index was mixed in early trading on Wednesday as investors exhausted Tuesday’s selling. Gauge quickly erased the losses to rise 0.3% after falling more than 1% at the opening Wednesday.
The disruption has questioned the investment potential of Southeast Asia’s largest stock market, falling 21% from its September peak, ranking one of the world’s worst performances this year. The lawsuit on Tuesday was also driven by speculation over the potential resignation of veteran finance minister Sri Muryani Indrawati.
Indowati has dispelled the rumors vigorously, but speculation comes at a volatile moment. There are concerns about Indonesia’s financial health. This includes an early fiscal deficit and state revenues down 20%. The outlook remains uncertain amidst the lack of budget allocation plans and new revenue generation measures.
Prabowo attempted to divert funds to his priority projects while reducing spending elsewhere. In addition to investor concerns, newly launched sovereign wealth fund Danantara has been reported directly to the president. The fund’s management of the company that makes up the fifth or higher company on the JCI Index surprised fears of political interference and the risk of transparency.
“Foreign investors are clearly rattled by Prabowo’s troubling signals on the reassignment of budgets and the Treasury’s ability to maintain the overall fiscal discipline of the Ministry,” said Homin Lee, senior macro strategist at Lombard Odier Limited.
