Indonesia faces MSCI decision as downgrade could trigger $13 billion exit

Indonesia is awaiting a June 23 decision from MSCI that could determine whether its stock market remains in the global index provider’s emerging-market category. A downgrade to frontier-market status could send as much as $13 billion out of the country, according to Goldman Sachs calculations cited by Fortune.

The decision matters beyond fund managers because index status can shape foreign demand for Indonesian shares and the rupiah. Achmad Sukarsono, associate director at Control Risks, told Fortune that if MSCI cuts Indonesia’s classification, index funds would be required by their rules to sell Indonesian holdings.

Josh Kurlantzick, a senior fellow for South and Southeast Asia at the Council on Foreign Relations, told Fortune that a downgrade would also send a negative signal to active investors. He said fund managers who make discretionary decisions would probably reduce exposure if MSCI judged the market less investable.

Investor concern has been building

MSCI raised concerns in January about Indonesia’s investability, citing limited transparency in ownership information and market activity, according to Bloomberg reporting referenced by Fortune. MSCI also froze interim index adjustments for Indonesian securities.

Indonesian equities have already been hit. Foreign investors have withdrawn $3.4 billion from the Jakarta stock exchange since the start of 2026, Fortune reported. The Jakarta Composite Index has fallen more than 28% this year, making Indonesia’s market one of the world’s weakest performers.

MSCI moved Indonesia into its emerging-market category in 1989 after financial reforms opened the country’s stock market to more foreign investors. Sukarsono told Fortune that Indonesia still has advantages including scale, demographics, strategic minerals and a large home market, but said investor confidence in policymaking has weakened.

Concerns have grown since President Prabowo Subianto took office in 2024, according to Fortune. Investors have questioned policies including his multibillion-dollar free meals program and the expanded role of Danantara, a new sovereign wealth fund, because of worries over fiscal pressure and a larger state role in the economy.

Moody’s and Fitch lowered their outlooks on Indonesia’s sovereign rating to negative in February and March, respectively, according to Reuters reporting cited by Fortune. Kurlantzick told Fortune that investors are also concerned about state spending, transparency, corruption, the removal of experienced technocrats, concentrated political power and resource nationalism.

Prabowo defended his approach in a March interview with Bloomberg, saying markets did not understand him and that he was pursuing what he viewed as practical solutions in Indonesians’ interests.

Currency pressure could reach households

A downgrade could add pressure on the rupiah if foreign capital leaves. Sukarsono told Fortune that a weaker currency would raise costs for imported goods and could show up in fuel, food and motorcycle repayments.

The rupiah was already under strain before MSCI’s final decision. Fortune reported that the currency had fallen to record lows after oil prices rose during the U.S.-Iran war. The rupiah has dropped 7% in 2026, making it Asia’s worst-performing currency, according to Bloomberg.

Kurlantzick told Fortune that Indonesia’s foreign-currency reserves are at their lowest level in two years. Inflation rose to 4.76% by February, above the central bank’s target range of 1.5% to 3.5%, Fortune reported.

Retail investors may also feel the effect. Lavanya Venkateswaran, OCBC’s senior ASEAN economist, told Fortune that household balance sheets could face some pressure because retail participation in equities has increased in recent years.

Reforms may shape the verdict

Jakarta has moved to answer MSCI’s concerns since January, according to Fortune. Authorities doubled the minimum free float to 15% from 7.5% and required disclosure of shareholdings above 1% of a company’s equity, down from the previous 5% threshold.

Siwage Dharma Negara, an Indonesian economist and senior fellow at Singapore’s ISEAS-Yusof Ishak Institute, told Fortune that those responses could help Indonesia avoid a downgrade. MSCI’s latest review lowered its assessment of Indonesia’s information flow to negative but left other market criteria unchanged, Fortune reported.

Mohit Mirpuri, a partner at SGMC Capital in Singapore, told Bloomberg that MSCI’s review identified problems to fix but did not, in his view, make a strong case for moving Indonesia to frontier-market status. Kurlantzick told Fortune that even if Indonesia keeps its current classification, the test will be whether promised reforms are carried out after the immediate pressure passes.

This story draws on original reporting from Fortune.