AmCham Update Vol. 7 #071

S&P Dow Jones Warns of Indonesia Market Downgrade, Budget Deficit Projected to Hit 2.85 Percent of GDP, DPR Deliberations Begin on Finance Center Legislation, Coal Corruption Linked to Power Outages, AmCham Toasts Stars & Stripes on July 4, Indonesia and Singapore Deepen Collaboration Leaders’ Retreat

Jul 08, 2026

S&P Dow Jones Indices Warns of Indonesia Market Downgrade

More bad news has hit the local capital market with S&P Dow Jones Indices (S&P DJI) putting Indonesia on a watch list for a potential downgrade to frontier market status in its next annual review in 2027.

S&P DJI said in an announcement on July 8 that it is monitoring reforms in Indonesia's capital market, including progress on the disclosure of share ownership data and guidelines issued by the Indonesia Stock Exchange (IDX) to address transparency and collusion concerns and potential liquidity impact in the country.

"If conditions deteriorate, S&P DJI will consider implementing special treatment for stocks from Indonesia," S&P DJI said in the announcement. Indonesia’s market classification would be assessed at the 2027 annual review.

IDX president director Jeffrey Hendrik said in a statement the same day that the exchange would conduct “constructive communications and discussions” with S&P DJI to understand its concerns.

“Together with the OJK [Financial Services Authority] and all stakeholders, IDX will continue to take various measures to address existing concerns. The exchange is committed to taking various efforts to improve transparency and ensure a fair, orderly and efficient capital market,” he said.

The benchmark Jakarta Composite Index closed on July 8 down 1.89 percent at 5,873.37. The rupiah again lost ground, trading at Rp 18.025 to the US dollar in the afternoon. The index has plunged more than 30 percent since the beginning of the year, making it one of the worst-performing major stock markets in the world.

The latest decline was in line with losses in other major markets, however, with Japan's Nikkei down 1.3 percent and South Korea's KOSPI off 2.6 percent at the opening on July 8.

The warning follows an earlier announcement on July 6 by global index provider MSCI that it would keep Indonesia as an emerging market for now, after warning earlier this year that Indonesia could be downgraded to frontier market status. MSCI said it is monitoring reforms.

The OJK, along with the IDX and the Indonesia Central Securities Depository (KSEI), has introduced several measures to address the transparency worries MSCI first raised in January, which triggered a major market rout and trading halts. This includes enhanced disclosure of shareholders owning more than 1 percent of a listed company and a road map to raise the minimum free float to 15 percent for IDX stocks.

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2026 Indonesia Budget Deficit Projected to Hit 2.85 Percent of GDP

The Indonesian budget deficit was revised upward by the government on July 7, to 2.85 percent of GDP for the year. The figure is bigger than earlier projections, despite spending on President Prabowo Subianto’s free meals program being cut back under fiscal pressure.

The latest figure is close to the statutory limit of 3 percent of GDP, an important fiscal barrier for investors; it is also wider than the government's previous estimate%u2060 of 2.68 percent for 2026 and the 2025 deficit of 2.81 percent of GDP.

Finance Minister Purbaya Yudhi Sadewa presented the figures during a hearing with lawmakers, saying the deficit in the first half of the year was Rp 196.5 trillion ($10.9 billion), equivalent to 0.76 percent of GDP.

The deficit remained "within a safe and manageable range," Purbaya told lawmakers, saying the government is committed to fiscal discipline.

Typically, Indonesia spends more toward the end of the fiscal year because some payments are only authorized after audits. In the first half of 2025, the budget deficit was 0.84 percent of GDP.

The state budget has been under pressure from rising energy costs due to the war in Iran. In addition, capital outflows have risen as investors have grown nervous over market conditions and the high cost of the free meals program.

Purbaya said total revenues are project to hit Rp 3,208.1 trillion rupiah for the year, 1.7 percent above the original target, largely due to high commodity prices.

Spending, however, is expected to be 2.6 percent more than expected at Rp 3,942.4 trillion. The Finance Ministry attributes the increase to the rising cost of fuel subsidies.

The free meals budget has been cut by Rp 67 trillion to Rp 268 trillion, which is included in the projections. Further cuts in the program are being discussed but have not been finalized.

Purbaya has previously said a further cut of 40 trillion rupiah is possible %u2060as part of an efficiency drive, but DPR budget committee head Said Abdullah said he was looking for double that.

Separately, the government and the House of Representatives have agreed to a 2027 budget deficit in the range of 1.8-2.4 percent of GDP.