Airlangga Hartato was all smiles on Feb. 19 as he signed his title to what he referred to as a “win-win” deal. After 4 journeys to Washington, seven formal negotiating rounds, and 9 conferences with U.S. Commerce Consultant Jamieson Greer, Indonesia’s financial system minister had lastly secured a discount in U.S. duties on Indonesian items—from a punishing 32% to a extra tolerable 19%.
The settlement, grandly titled Towards a New Golden Age for the U.S.–Indonesia Alliance, promised tariff exemptions for key exports like palm oil, espresso, cocoa, and rubber. In change, Jakarta pledged to scrap obstacles on greater than 99% of U.S. imports and decide to some $33 billion in purchases of American power, plane, and agricultural merchandise.
The very subsequent day, the U.S. Supreme Court docket struck down Trump’s Liberation Day tariffs—together with the unique 32% levy that had compelled Jakarta into the talks within the first place—as unconstitutional. (Trump has since adopted up with two new commerce probes on Indonesia, one on extra manufacturing and one other on compelled labor.)
The Supreme Court docket’s ruling was probably the most seen instance of unhealthy timing in what has been a punishing few months for Southeast Asia’s largest financial system, and an early check of President Prabowo Subianto’s excessive hopes for his tenure.
Since January, Indonesia has absorbed shocks from a number of instructions directly. A warning from international index supplier MSCI that Jakarta’s opaque inventory market may lose its coveted emerging-market standing triggered an 8% drop in markets over two days. Moody’s and Fitch each reduce their outlooks on Indonesia’s sovereign debt to unfavorable—step one towards a potential downgrade. Trump’s tariffs, in the event that they return, may threaten Indonesia’s export industries. Then got here the Iran battle, whose disruptions to the Strait of Hormuz threaten Indonesia’s gas provide.
“The economy is heading into a perfect storm,” says Siwage Dharma Negara, co-coordinator of the Indonesia Research Program on the ISEAS–Yusof Ishak Institute in Singapore. “This is something we’ve never imagined before.”
Fabrice COFFRINI—AFP/Getty Photos
Thus far, these back-to-back blows haven’t harm Indonesia’s actual financial system. However larger commodity costs, a weaker rupiah, and a squeeze on authorities spending may hit affordability in a rustic the place protests in response to rising gas costs and the price of residing are already widespread. Extra broadly, analysts warn that Indonesia’s push to provide the state a larger function within the financial system may hit enterprise confidence and funding, simply in the meanwhile when Indonesia wants capital to develop its manufacturing and mining sectors.
“We’re in an unusual period where Indonesia’s need for foreign capital is high, but its willingness to constrain itself in pursuit of that capital is low,” says Mattias Fibiger, an affiliate professor at Harvard Enterprise College who covers the Southeast Asian nation.
A “human capital” president
Prabowo Subianto took workplace in October 2024 with a daring goal of 8% annual progress by 2029. He inherited a stable financial system from his well-liked predecessor, Joko Widodo—higher often known as Jokowi—who had tried leveraging Indonesia’s plentiful pure assets by way of a “downstreaming” drive: banning uncooked nickel ore exports and forcing traders to construct smelters and refineries on Indonesian soil. That coverage turned the nation right into a vital node in international battery and EV provide chains.
Prabowo has sought to develop the state’s function additional nonetheless. “If you can think of Jokowi as a ‘physical capital’ president, then Prabowo is a ‘human capital’ president,” Fibiger explains.
Prabowo hoped to spend money on expansive social applications, like a nationwide free nutritious-meals scheme—now budgeted at roughly 335 trillion rupiah ($20 billion) for 2026, nearly 9% of the overall state funds, concentrating on 82 million schoolchildren, infants, and pregnant girls.
However it’s going to take a very long time for such applications to repay, in the event that they do in any respect. “Those dividends will be felt a generation down the line, not a year, not three years, not five years down the line,” Fibiger says.
Negara is blunter, noting these measures “are not really contributing to productivity growth.”
Fibiger traces Indonesia’s issues again to September, when Prabowo abruptly eliminated his broadly revered finance minister, Sri Mulyani Indrawati, amid mounting protests over residing prices and inequality. Sri Mulyani had served three presidents and was, in Fibiger’s phrases, “a personification of the Washington consensus,” or a champion of fiscal self-discipline and market-oriented reforms.
Her substitute, Purbaya Yudhi Sadewa, was extra aggressive on spending, tapping some $12 billion of the nation’s reserves to recapitalize state-owned banks and pledging to make use of greater than half of the federal government’s “rainy day” fund by the top of 2025.
“Indonesia has been a victim of both bad timing and bad policy,” Fibiger says.
Scores shock
But the primary shock to the nation got here from a unique supply totally. On Jan. 28, MSCI warned that it’d downgrade Indonesia to a “frontier market,” citing an absence of transparency over firm possession. Indonesia’s markets have lengthy featured corporations with dominant controlling shareholders and restricted public floats, permitting insiders to drastically transfer share costs.
The market rout finally worn out $120 billion in worth and compelled out not solely the chief govt of the Indonesian Inventory Change (IDX), Iman Rachman, but additionally the chair of the Monetary Companies Authority (OJK), Mahendra Siregar. Goldman Sachs downgraded Indonesian equities to “underweight” and estimated {that a} drop to frontier-market standing may set off one other $7.8 billion in outflows. Some native brokers warned that, in mixture, greater than $60 billion of international holdings may finally exit if Indonesia have been reweighted towards current frontier friends.
Jakarta moved shortly to attempt to head that off. OJK pledged to boost minimal free-float necessities to fifteen% and tighten disclosure of firm homeowners. Danantara, Prabowo’s new sovereign wealth fund, was mobilized to purchase equities; the funding ceiling for pension funds and insurers was raised from 8% to twenty% of property.
Pandu Sjahrir, Danantara’s chief funding officer, a coal tycoon turned enterprise capitalist earlier than becoming a member of the fund, says the IDX has “improved significantly” for the reason that MSCI’s warning.
“How do you find a good balance between being issuer-friendly and investor-friendly? You have to be in the middle,” he says. A brand new IDX administration workforce is predicted within the second half of the yr, and Pandu says he’s “encouraged” by the caliber of candidates.
However the market alarm proved to be solely the primary in a series. Inside weeks, each Moody’s and Fitch downgraded their outlooks on Indonesia’s sovereign debt to unfavorable. Moody’s cited “reduced predictability and coherence in the policymaking process,” whereas Fitch pointed to “growing centralization of policymaking authority.” (Whereas S&P hasn’t modified its outlook, it too is cautious of elevated spending, noting that curiosity funds doubtless surpassed 15% of presidency income final yr.)
“The underlying concern is about imbalance between state revenue and the government’s spending plans,” says Negara. Indonesia’s 2025 funds deficit reached 2.92% of GDP—the widest in additional than twenty years, outdoors of the COVID-19 disaster—pushing the nation uncomfortably near the three% cap it adopted after the Asian Monetary Disaster as a hard-won image of post-crisis self-discipline.
~$1 trillion
Belongings managed by Danantara, Indonesia’s new sovereign wealth fund
$120 billion
Market worth misplaced by corporations on Indonesia’s IDX inventory market, Jan. 29-30, 2026
2.9%
Indonesia’s 2025 funds deficit as a share of GDP
Sources: Danantara; S&P International; Authorities knowledge
A U.S.-Israeli strike on Iran in February and March, which led to the closure of the Strait of Hormuz, makes issues much more sophisticated for Indonesia’s funds. (In one other instance of poor timing, Prabowo had simply joined Trump’s “Board of Peace” to appreciable fanfare, solely to pause membership talks after the U.S. struck Iran.) Indonesia pumps round 608,000 barrels of oil a day, however surging home demand has made it a web importer since 2003.
The worth of petrol has lengthy been a political strain level in Indonesia, the place successive governments have used beneficiant subsidies to maintain costs artificially low. Rising gas costs are inclined to result in mass protests—as they did in 1998, finally serving to to topple Indonesia’s then-dictator Suharto, and in 2022, when protesters looted Sri Mulyani’s home.
Jakarta has vowed to maintain gas inexpensive with out imposing the approach to life modifications—shorter workweeks, hotter air-conditioner settings—that a few of its Southeast Asian neighbors have rolled out, however has supplied few specifics on the way it can pay for that stance.
In a mid-March interview with Bloomberg, Prabowo urged he would possibly elevate the budget-deficit cap to cope with the short-term emergency of the Iran battle and surging gas costs. Pandu characterised the federal government’s strategy as solely breaching the cap in “special cases.”
Unease on Danantara
Danantara, the sovereign wealth fund Prabowo launched in early 2025 with an estimated $1 trillion in state property beneath its umbrella, sits on the middle of investor unease about Indonesia.
The fund was designed with a mandate to optimize returns from Indonesia’s sprawling state-owned enterprises and recycle capital into initiatives that speed up nationwide improvement.
“We have this dual role: How can we optimize assets from state-owned enterprises to create more value, and at the same time create quality jobs?” CEO Rosan Roeslani defined to Fortune final yr.
But in apply, Danantara has been pulled deeper into Indonesia’s financial system. Earlier this yr, Prabowo ordered it to anchor the creation of a state-owned textile champion, backed by as a lot as $6 billion in capital, to rescue an business hammered by low cost Chinese language imports and commerce disruption. That’s led to worries about confused goals and mission creep. Others, like Negara, see Danantara as proof “that the current administration is trying to strengthen the role of the state,” which is worrying the non-public sector, notably as the federal government intervenes in strategic sectors like retail, mining, and power.
“The market is asking us to be the anchor of confidence,” Pandu says, noting Danantara’s energetic engagement with MSCI and the score businesses. “We’re investing in the stock market every day through fund managers,” he provides, serving to to rebuild belief in a market that urgently wants it.
“Indonesia grows like a metronome, whether the rest of the world is facing a financial crisis or during boom times.”
Mattias Fibiger, Affiliate Professor, Harvard Enterprise College
On the similar time, he acknowledges that Danantara can’t act like a purely industrial investor. “If I had to choose between a project that offered a 7% return and created 100,000 jobs, or one that offered a 10% return but created no jobs, I’d have to take the 100,000 jobs option,” he says. “I have to make some profit, but I also have to generate high-quality work.”
Slightly than the market turbulence or the fiscal squeeze, Pandu says his deepest concern lies elsewhere totally—with AI. “My biggest fear is being left behind in terms of global trends happening today, both in the U.S. and China. Those two countries are developing things that are rapidly changing the world order in terms of the haves and the have-nots,” he says.
The metronome financial system
Prabowo, a former military normal, has been characteristically punchy in his response to international traders’ jitters. “The markets are not understanding me,” he griped to Bloomberg, insisting that analysts had “got it wrong” and that home regulators had mishandled the MSCI warnings.
The onerous knowledge give him some cowl. Indonesia’s financial system grew 5.11% in 2025, its quickest tempo in three years and above most analysts’ expectations, supported by sturdy family spending and funding.
Negara agrees there’s nonetheless a stable ground beneath the present turbulence. Indonesia’s progress has lengthy been anchored by home demand quite than exports; a younger, more and more city inhabitants; and a big, increasing center class. “If domestic consumption is still growing, it means that there’s still an opportunity for the economy to grow at 4% or 5% per year,” he argues.
“The consumer is still relatively strong and wealthy, and they’re here to spend, especially the middle, upper middle class,” says Pandu of Danantara. He thinks international traders are ignoring alternatives in on a regular basis Indonesian consumption.
Indonesia has been remarkably constant. “The astonishing thing about Indonesia is that it grows like a metronome,” Fibiger says. He factors out that for the reason that finish of the Suharto period, Indonesia has posted roughly 5% progress yr after yr “when commodity prices are high, when commodity prices are low, when the rest of the world is facing a financial crisis, or during boom times.”
“It doesn’t seem obvious to me that today’s problems will prevent Indonesia from growing around that number in the future,” he provides, even when Prabowo’s dream of 8% seems potential solely with reforms.
Past consumption, Indonesia additionally gives alternatives in mining and metals, an more and more scorching sector because the world realizes the significance of vital minerals for industries like EVs and semiconductors. After which there’s AI and knowledge facilities, which may make the most of Indonesia’s low cost and plentiful power provide, notably because the nation continues to spend money on renewable power.
“This is a great opportunity to tell Indonesia’s story,” Pandu says. “We haven’t done a great job at it, to be honest.”
This text seems within the April/Might 2026: Asia subject of Fortune with the headline “Indonesia’s market meltdown.”
