Indonesia's Economic Tempest: Navigating Credit Downgrades and Market Uncertainty

Indonesian stocks and currency tumbled after Moody's downgraded the country's credit rating outlook to negative. This caused the main stock index to drop by over 2% and the rupiah to hit its lowest level since January. Concerns about policymaking and governance have sparked fears of further instability.

Indonesian stocks and the rupiah faced downward pressure in early trading on Friday as Moody's Investors Service downgraded the country's credit rating outlook from stable to negative. This marks another setback for Southeast Asia's largest economy in a turbulent market environment.

The main stock index fell more than 2%, and the rupiah declined up to 0.33% to 16,880 per dollar, its weakest since late January. Moody's cited reduced predictability in policymaking and transparency issues, highlighted earlier by MSCI, which led to an $80 billion market rout. Concerns over governance and policy effectiveness could undermine Indonesia's established credibility, Moody's warned.

While Indonesia's leaders have sought to mitigate the downgrade's impact, urging a focus on strong economic fundamentals, market analyst Rully Arya Wisnubroto emphasized growing risks, especially on long-term government bonds and the rupiah. Economists caution that sustained uncertainty may provoke additional downgrades without credible policy adjustments.

(With inputs from agencies.)