Indonesia Commits to Financial Market Reforms Following $80 Billion Drop

Indonesia's Commitment to Market Reform

JAKARTA/SINGAPORE, Jan 30 (Reuters) - Indonesia's chief economic minister promised increased financial market transparency and improved corporate governance on Friday, after the stock exchange chief resigned to take responsibility for a $80 billion share rout.

Proposed Measures for Improvement

Airlangga Hartarto, at a news conference, said authorities were committed to stock market reform and that the country's economic fundamentals remained sound.

Proposed improvement measures include doubling the free float requirement of shares to 15%, allowing pension and insurance funds to increase capital market investment to 20% of their portfolio from 8%, and checking the affiliation of shareholders with ownership of less than 5%.

"The government guarantees protection for all investors by maintaining good governance and transparency," Airlangga said.

Index provider MSCI flagged a possible downgrade of Indonesian stocks to "frontier" status on Wednesday due to concern about share ownership and trading transparency, triggering the steepest two-day share price fall since April.

Impact of Leadership Changes

Indonesia Stock Exchange CEO Iman Rachman resigned on Friday.

"I hope this is the best decision for the capital market. May my resignation lead to improvement in our capital market," Iman told a press conference. "Hopefully, the index, which opened positively this morning, will continue to improve in the coming days."

The benchmark Jakarta Composite Index dropped more than 8% on Wednesday and Thursday but was last up 1.18%, a day after authorities announced the proposed measures to address MSCI's concern and ease investor worry.

The rupiah was last at 16,790 to the U.S. dollar, hovering near its weakest-ever rate of 16,985 set last week.

Someone had to take responsibility for the loss of confidence, said Mohit Mirpuri, portfolio manager at SGMC Capital in Singapore, referring to Iman.

Investor Sentiment and Future Outlook

"The bigger picture is a reset and an opportunity for the exchange to emerge stronger with clearer standards and governance," Mirpuri said.

Foreign capital outflows have increased due to concern about how President Prabowo Subianto is widening the fiscal deficit and expanding state involvement in financial markets.

This month's appointment of his nephew Thomas Djiwandono to the central bank and last year's firing of respected finance minister Sri Mulyani Indrawati have shaken confidence in Prabowo's stewardship.

Regulators said communication with MSCI has been positive and that they were awaiting a response to their proposed measures which they hoped to implement soon.

Their swift action appears to have allayed investor concern but sentiment remains fragile.

"Policymakers want to fix this," said Paul Dmitriev, senior analyst and co-portfolio manager at Global X ETFs. "The government has every incentive to fix these issues as systemic outflows would be substantial and could materially impact the market."

Foreign investors sold around a net $645 million worth of shares in the two-day selloff, exchange data showed. They sold $1 billion worth of shares in 2025.

($1 = 16,780.0000 rupiah)

(Reporting by Ananda Teresia, Fransiska Nangoy and Gibran Peshimam in Jakarta, Ankur Banerjee and Gregor Stuart Hunter in Singapore; Writing by Raju Gopalakrishnan; Editing by Jacqueline Wong, Christian Schmollinger and Christopher Cushing)