What specific reforms has Indonesia enacted to maintain its emerging market status?

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Indonesia's Reforms to Maintain Emerging Market Status

Indonesia has implemented recent reforms, primarily focused on increasing the free float levels of its stocks, in an effort to retain its emerging market classification by MSCI. Analysts suggest these measures, alongside a lack of broad criticisms in MSCI's recent update, are likely sufficient to prevent an immediate downgrade. However, the decision on Tuesday will also be closely watched for any indication of MSCI lifting its freeze on adding Indonesian stocks to its indexes.
Measures to Increase Free Float

The Indonesian government has undertaken reforms aimed at raising the proportion of shares available for public trading, commonly referred to as free float levels. This move is a direct response to concerns previously raised by MSCI regarding weak free float visibility. While specific details of all enacted reforms are not extensively elaborated, the emphasis has been on creating a more accessible market for investors.
Addressing MSCI's Concerns

MSCI had previously flagged several issues that put Indonesia's emerging market status at risk. These included concerns about opaque ownership structures, insufficient visibility of free float, and the reliability of trading data. The ongoing reforms are intended to directly counter these points, aiming to provide greater transparency and a more robust trading environment. MSCI also noted in a recent update that there are signs of coordinated trading distorting price formation and inadequate provision of detailed market information in English, which the reforms also aim to address.
Potential Impact of a Downgrade

A downgrade by MSCI could have significant financial repercussions, potentially leading to outflows of up to US$13 billion (approximately RM53 billion) from Indonesian equities, according to Goldman Sachs. This comes at a time when the market capitalization of Indonesian assets has already seen a considerable decline, shrinking to US$601 billion from over US$900 billion at the beginning of the year. The benchmark Jakarta stock index has experienced a 30 per cent drop this year, making it the world's worst-performing stock market, with foreign investors net selling US$3.89 billion worth of Indonesian equities in 2026.
Broader Economic and Political Context

Beyond MSCI's classification, investor sentiment towards Indonesia has also been affected by broader economic and political factors. Growing unease has been attributed to President Prabowo Subianto's populist agenda, which has coincided with the Indonesian rupiah sliding to record lows. Furthermore, rating agencies Moody's and Fitch have both revised their debt rating outlooks for Indonesia to negative earlier this year, citing reduced policymaking credibility. These factors contribute to a fragile investment backdrop that accompanies the MSCI decision.

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What specific reforms has Indonesia enacted to maintain its emerging market status?

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