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[JAKARTA] Fears of a slowing economy and uncertainty over President Prabowo Subianto’s recent policies rattled investors, sparking a market sell-off that triggered a trading halt on Tuesday (Mar 18) as the benchmark index plunged.

The Jakarta Composite Index (JCI) plummeted by up to 5 per cent, recording its sharpest intra-day drop since the 2020 pandemic-induced chaos, leading to a 30-minute trading halt at 11.19 am local time.

The index briefly dropped more than 7 per cent after the trading halt was lifted, marking its lowest point since September 2011. It closed 3.8 per cent lower, defying the generally positive market sentiment across Asia driven by China’s stimulus measures.

Large-cap stocks, including those with sky-high price-to-earnings ratios such as Barito Renewables Energy and DCI Indonesia, took a nosedive, with the latter suffering the biggest losses with declines of up to 20 per cent.

The JCI has plunged more than 12 per cent this year, with the recent downgrades by Morgan Stanley and Goldman Sachs adding fuel to the fire, leaving investors on edge and casting a shadow over Indonesia’s economic prospects and stock valuations.

Meanwhile, the rupiah slid to 16,472 per US dollar, dropping 0.3 per cent from the previous day, marking the steepest decline in Asia after the South Korean won.

The rupiah has been one of the worst-performing currencies in the region in 2025, having declined more than 2.9 per cent year to date, amid concerns over US President Donald Trump’s trade policies, which have rattled Asian currencies.

BMI, a Fitch Solutions unit, expects further weakness ahead and has forecast the rupiah to reach 17,000 against the US dollar by the end of the year, driven by extensive fiscal and monetary policy loosening to meet Prabowo’s 8 per cent growth target.

The unsustainability of these measures is expected to put pressure on the currency.

“President Prabowo’s recent policy moves were poorly received by investors, and we believe this sentiment will persist throughout the year,” wrote BMI.

Uncertainty spooks investors

The plunging of the index also comes amid swirling rumours of Finance Minister Sri Mulyani Indrawati’s resignation, fuelling growing market concerns over the future of Indonesia’s fiscal discipline should she step down.

However, she shut down speculation about her resignation on Tuesday, reassuring investors that the country’s fiscal position remains strong and that improving tax revenues should help steady the market.

“We are here, and we are accountable,” she said at a press conference. “I will not step down.”

Ari Jahja, head of Indonesia research at Macquarie Capital, said the recent rupiah depreciation, coupled with concerns over the widening budget deficit under Prabowo’s administration, has become a major worry for investors.

“There’s also the lingering overhang on Danantara’s execution and its impact on state-owned banks,” he added.

The newly established sovereign wealth fund, Danantara, which reports directly to Prabowo, made waves last month by announcing its plans to take the reins of seven state-owned enterprises. Among its most significant assets are three of Indonesia’s largest banks, collectively holding more than US$340 billion in total assets.

Shares of Indonesia’s leading state-owned banks – Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Mandiri – have been on a sharp decline over the past month, further weighing on the country’s declining equity market.

Bank Rakyat Indonesia posted the steepest drop, tumbling more than 16.8 per cent, as investors’ concern over Danantara’s impact on their assets continue to mount.

The three banking giants hold a substantial combined market valuation of 1,125.4 trillion rupiah (S$90.8 billion).

A Singapore-based fund manager noted that reports of the Indonesian government negotiating revisions to the Indonesian National Armed Forces (TNI) law, potentially allowing TNI members to take roles in civilian institutions, could also unsettle investors.

Nafan Aji Gusta, senior investment analyst at Mirae Asset Sekuritas Indonesia, highlighted that negative sentiment continues to cloud the Indonesian market, fuelled by growing concerns over the decline of the middle class – historically a key driver of Indonesia’s economic growth.

He cautioned that this trend undermines the country’s macroeconomic outlook, leaving it far from optimistic.

“Investors are eagerly awaiting pro-market policies from the government,” he said.

Soften growth risk

As a Muslim-majority nation, Indonesia looks to Ramadan and Idul Fitri as key moments for consumer spending, largely driven by holiday bonuses given by employers to workers.

In a bid to fuel economic activity during the holiday season, the government is rolling out a targeted stimulus package for the transportation and retail sectors, sparking hopes for a seasonal boost to the economy.

While the government’s social assistance initiatives may offer some relief to purchasing power, analysts now expect the rebound in consumer spending to be slower than originally anticipated.

Consumer confidence of South-east Asia’s largest economy dipped for a second consecutive month to 126.4 in February, from 127.2 in January. The decline reflects concerns over job losses and income instability, particularly in labour-intensive manufacturing industries.

Brian Lee, economist at Maybank, highlighted persistent economic uncertainty and concerns over job and income security, which are leading households to adopt a more cautious approach to their spending.

“Rising economic uncertainty, coupled with concerns over job security and increased competition from China, is weighing heavily on consumer confidence and dampening spending enthusiasm.”

In the light of these challenges, Maybank has revised Indonesia’s 2025 gross domestic product growth forecast downwards to 5 per cent from the previous 5.2 per cent, with first-quarter growth expected to slow to around 4.8 per cent, compared with 5 per cent in the fourth quarter.

All attention is on Bank Indonesia as it prepares to unveil its interest rate decision on Wednesday.

With the room for further cuts shrinking, analysts expect the central bank to hold steady at the current 5.75 per cent, signalling a cautious approach in the face of economic uncertainty.