Indonesia Investments February 2025 Report - Introduction
The reason why we frequently discuss Indonesia’s financial markets (especially the stock and money markets) in our monthly reports is because these markets reflect the degree of confidence there exists among domestic and foreign investors (which involves individuals as well as the big corporations) in global political and economic conditions and in the economic and fiscal fundamentals of Indonesia.
In other words: when there are problems, or uncertainty, investors typically turn to safe haven assets (such as gold or the US dollar), and dump emerging market assets. And so, it is interesting to take a look at how the benchmark stock index of Indonesia (IHSG) performed in the last trading week of February 2025.
What those red numbers in table 1 reveal is that investors are highly concerned. Key reason why we see huge sell-offs is US President Donald Trump's (new) tariff threats for China, Mexico, Canada and the European Union as this is expected to undermine global trade, and global economic growth. Moreover, countermeasures expected to be undertaken by targeted countries are likely to further exacerbate the situation.
However, it is also important to point out that Indonesia is hit harder by the ongoing turmoil than other countries. Table 2 presents a selection of Asian benchmark stock indices, and shows their performances in the last trading week of February 2025.
Table 2 shows a wide discrepancy between the performance of Indonesia’s IHSG and the performance of the benchmark indices in other Asian countries. Thus, leading to the question: why is Indonesia hit hardest among Asian countries? There must be internal factors playing a role, too.
Well, there is not something new at play here, actually. Throughout the two decades we have been watching the benchmark stock index of Indonesia, we have seen that investors are particularly keen on dumping Indonesian assets in times of global or economic turmoil. The key reason for this is that Indonesia, Southeast Asia’s largest economy, has always ranked among the more risky emerging economies because of its current account deficit, high inflation (which only in recent years has come down heavily), its reliance on commodity exports, currency volatility, infrastructure gap, regulatory uncertainty, bureaucracy and corruption.
However, while above-mentioned factors are more general, there may also be some more specific factors at play that are currently in the spotlights, particularly related to a couple of political developments in Indonesia.
For example, in February 2025, the Indonesian government launched its sovereign wealth fund Danantara, which will (essentially) manage all state-owned assets, with the aim to create a huge investment vehicle that can trigger the multiplier effect for the Indonesian economy by investing in big, game-changing, projects.
Ironically, the launch of Danantara comes at a time when Indonesian media report about an alleged corruption scandal at state-owned energy giant Pertamina. Core of this scandal involves allegations that Pertalite (RON 90) fuel was being blended and then sold as Pertamax (RON 92), which is a higher-grade and more expensive fuel, between 2018 and 2023. This would be another huge scandal, indeed.
Therefore, the question is, with all that capital being accumulated by Danantara and being managed by a selection of people with high political connections, whether we will see more examples of mismanagement, corruption and political interference? If so, it would involve the accumulated assets of all state-owned enterprises.
And, many of our readers may still remember the “Jiwasraya scandal” in the 2010s, involving state-owned life insurance company PT Asuransi Jiwasraya. This scandal exposed serious flaws in the company's financial management as well as widespread corruption, resulting in substantial financial losses, implying missed opportunities for Indonesian society.
This could explain why the shares of three big Indonesian banks, Bank Mandiri, Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI), plummeted in February 2025. Although these banks are listed on the Indonesia Stock Exchange, they are still state-controlled, so their capital becomes managed by Danantara. In February 2025, shares of Bank Mandiri dropped 24.9 percent, BRI fell 19.8 percent and BNI fell 12.6 percent. These declines seem to reflect the big loss in confidence of market players, and these declines are steeper than the average decline of the IHSG in February.
Meanwhile, returning to global developments. At the very end of February 2025, we also witnessed a chaotic meeting between Ukrainian President Volodymyr Zelensky and Trump, right in front of international press. While it made ‘interesting television’ (as such discussions usually take place when there are no cameras), the concern is that US-Ukraine and US-EU relations become increasingly tense and complex, which obviously is a concern for portfolio investors.
And so, this is certainly not the best way to start the holy fasting month of Ramadan (which runs from 1 to 30 March 2025). For Muslims, Ramadan is a month of fasting, prayer, community, self-discipline and reflection. Considering Indonesia is home to the world’s largest Muslim population, the Ramadan month and subsequent Eid al-Fitr festivities (which are the celebrations that mark the end of the Ramadan) have a significant impact on the economy of Indonesia. Expect more on this topic in the March 2025 edition of our monthly report.
Richard van der Schaar, MA Indonesian Studies
Managing Director
Indonesia Investments
Yogyakarta, Indonesia
1 March 2025
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