Indonesia faces renewed pressure to sustain investor confidence: analyst

JAKARTA: Indonesia faces renewed pressure to maintain investor confidence and economic stability after vice-president Gibran Rakabuming Raka's resignation, with his successor's credibility expected to play a crucial role in shaping market sentiment, an economist said.

Business and economic analyst Dr Muhammad Ramaditya said Indonesia's financial markets reacted differently to Gibran's resignation; the rupiah weakened amid political uncertainty, while domestic equities rallied as investors welcomed the prospect of a smoother political transition.

"On the currency side, political uncertainty triggered an immediate wave of risk aversion, pushing the rupiah down to a record low of Rp18,247 per US dollar. Conversely, domestic equities reacted with relief.

"The Indeks Harga Saham Gabungan (IHSG) actually rallied 2.66 per cent to close at 5,250.89, as stock investors viewed Gibran's voluntary step-down as a pressure valve that averted a prolonged, destabilising impeachment battle in Parliament," he told Bernama.

Gibran formally submitted his resignation letter to the People's Consultative Assembly (MPR) on Thursday, amid legal developments concerning his educational qualifications, prompting the assembly to begin a selection process for a successor.

The MPR has up to 60 days to fill the vacancy. President Prabowo Subianto is required to nominate two candidates within 14 days of receiving a formal request from the assembly.

Although the broader economic consequences of Gibran's resignation have yet to become apparent, Ramaditya, who is also a lecturer at the University of Indonesia's Faculty of Administrative Sciences, said investors remained in a wait-and-see position, with much depending on the selection of his successor.

"If economic conditions worsen alongside political instability, it could lead to a crisis unless the situation is addressed quickly," he warned.

The political transition comes as Indonesia's capital market faces heightened scrutiny after global index provider MSCI announced plans to remove energy conglomerate Barito Pacific (BRPT) and Bumi Resources Minerals (BRMS) from its Global Standard Indexes, effective Dec 1, according to its latest review.

The changes are expected to leave just seven Indonesian companies in the MSCI Indonesia Index compared with 17 in April, based on MSCI's earlier index factsheet and Indonesian financial media reports.

The latest review follows MSCI's Oct 15 proposal to reclassify Indonesia from an emerging market to a standalone market amid concerns over ownership transparency and suspected coordinated trading, with a decision expected by June 2027.

Ramaditya said the credibility of Gibran's successor is critical to reassure investors in the political transition. This is particularly so, as Indonesia faces heightened scrutiny from MSCI over capital market governance and transparency.

"First and foremost, the successor must bring an unassailable legal, educational, and ethical track record to immediately reassure both domestic and international investors, especially at a time when currency markets are sensitive to governance questions and global index providers like MSCI are closely watching Indonesian market credibility," he said.

Beyond personal credibility, Ramaditya said the next vice-president will need to improve coordination across government agencies to address bottlenecks in state budget disbursement, infrastructure delivery and cooperation with regional administrations.

He said effective coordination will be essential to advancing Indonesia's economic priorities, including downstream industrialisation, energy transition and formal job creation, while ensuring that government spending translates into tangible economic benefits.

"A successful transition will require a vice-president who champions labour-intensive industries and eases friction for small businesses, all the while keeping the ruling coalition united without resorting to unbudgeted populist spending that could threaten Indonesia's fiscal discipline," he said.