Indonesia Finance Chief Pushes Back at Moody's Outlook Cut

Moody’s has downgraded Indonesia’s credit rating outlook to negative from stable, citing concerns over policy predictability and governance. The move, announced on February 5, follows growing investor unease over fiscal and regulatory transparency. Indonesia’s economy is a $1.4 trillion G20 member under President Prabowo Subianto, who has pursued aggressive growth initiatives since taking office according to Reuters.

The downgrade is the latest challenge for Indonesia after MSCI flagged transparency issues in its markets, triggering an $80 billion selloff. Moody’s highlighted reduced policy predictability, weak governance, and fiscal expansion as key risks. These trends, if sustained, could erode Indonesia’s long-established credibility in economic management.

Indonesia’s Finance Ministry and central bank have rejected the negative outlook as an overreaction. Officials argue that the country’s economic fundamentals remain strong, citing robust growth in 2025 and resilient financial systems.

Why Did Moody’s Make the Move?

Moody’s cited weakening governance and policy effectiveness as the primary reasons for the outlook shift. The agency warned that sustained policy uncertainty could undermine Indonesia’s macroeconomic stability, especially if fiscal expansion outpaces revenue growth.

The central bank has also been criticized for its perceived lack of independence. Recent personnel changes at Bank Indonesia, including the appointment of President Prabowo’s nephew, have raised concerns over political influence in monetary policy.

The downgrade follows a period of heightened volatility in Indonesia’s financial markets. Investors have grown wary of policy direction, particularly with the government replacing a fiscally conservative finance minister with a pro-growth economist.

What Are the Market Implications?

Markets reacted swiftly to the news. The rupiah, already under pressure from earlier selloffs, dropped to its lowest level since January. Analysts expect increased risk premiums across asset classes, especially in long-term government bonds and stocks of state-owned enterprises.

Foreign investors continued to sell Indonesian equities, with net outflows reaching $860 million since last week. The Jakarta Composite Index fell 2.7% for the week, signaling ongoing uncertainty.

Credit default swaps on Indonesian sovereign debt also widened significantly. Market participants worry that the downgrade could trigger a broader reassessment of Indonesia’s fiscal and institutional credibility.

What’s the Government’s Response?

Indonesian officials have pushed back against the downgrade, emphasizing economic resilience. Finance Minister Purbaya Yudhi Sadewa defended the government’s approach, saying the MSCI warning is an opportunity to improve transparency. He argued that Indonesia’s economic transformation is still in progress but on track.

The central bank and financial regulators have pledged to strengthen policy communication and maintain macroeconomic stability. Bank Indonesia has stated it will work closely with the government to enhance market confidence.

Indonesia’s sovereign wealth fund, Danantara, has also called for institutional reform and policy consistency. It highlighted the need for long-term structural improvements to address market concerns.