Iman Rachman, president director of the Indonesia Stock Exchange, resigned on Friday morning after a two-day market plunge erased around $80 billion in value. The sell-off started Tuesday when index provider MSCI warned of transparency problems that could lead to a downgrade of Indonesia's market status from emerging to frontier. Trading halted automatically on Wednesday and Thursday as the main index fell over 8 percent.
Background
Indonesia's stock market has faced growing pressure in recent weeks. Foreign investors pulled out $645 million in just two days this week, adding to worries about the economy. The rupiah hit near-record lows, and questions grew about government spending plans under President Prabowo Subianto. His plans to boost social programs come as revenues weaken, raising fears of fiscal strain. This week also saw Prabowo's nephew confirmed as deputy governor of the central bank, sparking talk of reduced independence there.
The market had been steady until MSCI's announcement. MSCI, which tracks indexes followed by funds worldwide, pointed to opacity in company ownership and possible coordinated trading that hurts fair pricing. These issues have built up over time, with investors long complaining about unclear shareholding structures. A downgrade to frontier status would mean less money flows in, as many funds avoid such markets due to low liquidity and higher risks.
The Jakarta Composite Index, the main benchmark, dropped to its lowest since November on Wednesday. It fell another 8 percent Thursday before halting. By Friday morning, it rebounded about 1.2 percent to around 8,350 points, but losses from the week still topped $80 billion.
Key Details
Rachman made his resignation public during a press conference Friday. He said market conditions had improved that morning, but he wanted to take responsibility for the past two days' events.
"Even though market conditions have improved this morning, I want to state that, as a sign of my responsibility for what happened over the past two days, I hereby announce my resignation as president director of Indonesia Stock Exchange." – Iman Rachman
He hopes his exit will help the capital market move forward. The exchange will follow its rules to appoint a replacement, with an acting director likely soon.
Regulators Act Quickly
Indonesia's Financial Services Authority announced it would raise the minimum free-float for listed companies to 15 percent. Free-float means shares available for public trading, and higher levels improve liquidity and openness. The government also plans to let pension funds and insurers invest up to 20 percent of assets in stocks, doubling the old 8 percent limit.
The IDX acknowledged MSCI's points and pledged to boost Indonesian stocks' weight in global indexes. These steps aim to fix the problems MSCI raised and calm investors.
Analysts see these changes as steps toward more clarity. One expert noted that doubling free-float rules could address opacity in business structures and governance issues over time.
"We expect more affirmative steps to assuage concerns of the investor community and global index providers, while ironing out opacity of business structure and any remnant governance issues in the medium-term." – Radhika Rao, DBS
The market showed some recovery Friday, but trading stayed volatile. The index dipped briefly to 8,167 points on resignation news before climbing back.
What This Means
Rachman's departure signals accountability amid the crisis, but it may not fully restore trust right away. Investors watch for MSCI's next moves, with a decision possible by March. A downgrade would force funds tracking MSCI indexes to sell Indonesian stocks, worsening outflows.
Broader economic worries linger. The rupiah's weakness raises import costs and inflation risks. Government spending plans could strain budgets if growth slows. Central bank moves face scrutiny after the new deputy governor appointment.
For companies on the IDX, higher free-float means selling more shares to the public. This could dilute control for big owners but make stocks easier to trade. Pension funds investing more might bring steady local money, offsetting some foreign exits.
Global funds now reassess Indonesia. Emerging markets already face headwinds from U.S. rate paths and China slowdowns. Indonesia's issues make it riskier than peers like Vietnam or India.
Regulators' promises offer a path forward. If they deliver on transparency and liquidity, MSCI might hold off on changes. Markets need consistent steps to rebuild confidence. Foreign flows could return if ownership clears up and trading looks fairer.
The IDX handles over 900 listed firms, key to funding businesses. Stability there supports jobs and growth. This week's events highlight how global watchers like MSCI shape local markets.
Investors pulled back amid political shifts post-election. Prabowo's team pushes bold plans, but markets want signs of balance. The resignation and reforms are early tests of that.
Friday's rebound gives hope, but full recovery needs time. Traders eye weekend news for clues on leadership and policy. The exchange runs normally, but all eyes stay on index reviews and economic data ahead.
