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Moody’s has cut its credit rating outlook for Indonesia to “negative”, citing policy uncertainty under President Prabowo Subianto, in the latest warning on market quality in south-east Asia’s largest economy.
The change from a “stable” outlook comes a week after global index provider MSCI said Indonesia could lose its emerging-market status over “fundamental investability” issues, triggering a rout in stocks.
Moody’s flagged issues including policy uncertainty, weak governance, fiscal deterioration and ineffective government spending. It maintained its investment-grade Baa2 rating.
“The outlook change is driven by reduced predictability in policymaking, which risks undermining policy effectiveness and points to weakening governance,” Moody’s said late on Thursday.
“If sustained, the trend could erode Indonesia’s long-established policy credibility, which has supported solid economic growth and macroeconomic, fiscal and financial stability.”
It also pointed to uncertainties regarding governance and the investment priorities of Indonesia’s new sovereign wealth fund, Danantara.
The Jakarta Composite stock index fell 1.9 per cent on Friday after Moody’s announcement, while the rupiah weakened 0.3 per cent against the dollar. Yields on 10-year Indonesian government bonds rose 0.1 percentage points to 6.41 per cent. Bond yields move inversely to prices.
Doubts over Prabowo’s economic and fiscal policies, aimed at an aggressive pursuit of an ambitious growth target, have increased since he took office in October 2024.
Last year, he sacked finance minister Sri Mulyani Indrawati, who was known for her insistence on fiscal prudence, and replaced her with Purbaya Yudhi Sadewa, an economist who once called the IMF “stupid”.
Prabowo, a former military general, also appointed his nephew as one of the central bank’s deputy governors, a move seen as steering the bank towards a pro-growth approach and away from rupiah strength.
While Prabowo has set an ambitious plan to boost annual growth to 8 per cent from the current 5 per cent, economists said his policies so far did not align with that goal. The president has focused on spending policies such as a free meals programme that is expected to cost $28bn a year.
Moody’s said “the greater focus on using public spending to drive growth poses fiscal risks, particularly given Indonesia’s weak revenue base”.
Responding to Moody’s outlook change, Indonesia’s co-ordinating minister for economic affairs Airlangga Hartarto said many rating agencies and global financial markets “have yet to understand” Prabowo’s policy changes.
“Our state budget this year is somewhat different because we’re spending more for the president’s flagship programmes . . . but to drive economic growth through investment, we now have Danantara,” he said. “That’s what makes the difference.”
Additional reporting by William Sandlund in Hong Kong
