Indonesia's stock market has suffered the worst collapse in the world while the Rupiah currency has plunged to its lowest level in history due to investor anxiety over President Prabowo's populist policies.
Just five months after hitting record highs, Indonesia's benchmark stock index has now reportedly fallen by 36 percent. This decline places the neighboring country's stock market as one of the worst performers globally, outperforming more than 90 other global benchmarks.
The Rupiah currency has been the most visible victim of this storm of investor anxiety as its value has plunged around 14 percent since the new administration began. In fact, the Rupiah recorded a black history when it crossed the psychological level of 18,000 per US Dollar on Thursday.
Doubts Over the President's Populist Policies
International investors have begun to express their displeasure over the government's interventionist agenda and President Prabowo Subianto's aggressive populist approach. His plan to take direct control of key commodity exports to curb tax evasion has instead sparked panic among shareholders.
Market sentiment has worsened after the departure of former Finance Minister Sri Mulyani Indrawati, who was seen as a guarantor of the country's financial discipline.
Investors are now questioning whether the conservative budget management that earned Indonesia its investment-grade credit rating is still respected.
Indonesia's economic mood has become increasingly tense as global benchmark index MSCI Inc. warned of a possible downgrade of the country from emerging to frontier markets. The warning was a major blow as it could automatically divert billions of dollars of global funds out of Jakarta.
For us in Malaysia, the economic collapse of our closest neighbor is not something to be taken lightly as it could have a knock-on effect on regional economic stability.
A weak rupiah and volatile markets could affect bilateral trade flows and the cost of goods imported from there in our daily lives.
