Preserving Trust in Indonesia as an Investment Destination

Trust carries tangible economic value. When investors have confidence in the quality of information, the integrity of trading, and the protection of their rights, companies are better positioned to secure financing at a reasonable cost. When that confidence weakens, the consequences can extend beyond the stock exchange to businesses postponing expansion, suppliers losing orders, and workers facing fewer opportunities. This is the context in which Indonesia must address MSCI’s proposed reclassification of its equity market.

On October 15, 2026, MSCI announced a consultation on a proposal to reclassify Indonesia from emerging market to standalone market status, with a final decision expected by the end of June 2027. Its concerns include opaque shareholding structures and suspected coordinated trading. Reforms announced by the authorities must therefore be supported by consistent implementation and evidence of meaningful results. It is equally important to communicate the proposal’s status accurately: the consultation is underway, but no final reclassification decision has been made.

This distinction matters for a proportionate response. Equity market classification is separate from a country’s sovereign credit rating. Nevertheless, the implications for capital access deserve serious attention. If reclassification proceeds and Indonesian equities are removed from relevant benchmark indexes, funds tracking those indexes would need to adjust their portfolios. Active investors have greater discretion, but they, too, may reassess liquidity, investment mandates, and market risks.

For businesses, changes in investor behaviour can have consequences well beyond daily share-price movements. Lower liquidity can make large transactions harder to absorb without affecting prices. Depressed valuations can force companies to surrender larger ownership stakes to raise the same amount of capital. Plans for equity offerings, new production facilities, and business expansion may consequently be reconsidered. The scale of these effects would depend on the final decision, its implementation timetable, global market conditions, and the response of policymakers and companies.

Indonesia should therefore treat this issue as a priority in financing its growth. The country needs long-term capital to strengthen industry, build digital infrastructure, expand energy supply, and improve productivity. Its considerable economic potential becomes more investable when investors can understand who controls a company, how important decisions are made, and whether shareholders are treated fairly.

Indonesia has every right to scrutinise the methodology and proportionality of assessments by international index providers. Constructive engagement is necessary to ensure that the characteristics of our market are fully understood. However, Indonesia’s position in that dialogue will be stronger when backed by evidence of improvement. Questioning an external assessment should go hand in hand with addressing the weaknesses that undermine investor confidence.

KADIN has a practical role to play. As Indonesia’s chamber of commerce and industry, it can connect companies’ financing needs with investor expectations and the authorities’ reform agenda. This requires sustained technical work: gathering concerns, setting priorities, encouraging improvements among member companies, and assessing progress. Enforcement remains the responsibility of the relevant authorities, while businesses must take responsibility for strengthening their own corporate practices.

A useful starting point would be a focused working group with an initial 90-day mandate, bringing together expertise in capital markets, investment, corporate governance, and digital transformation. Its responsibilities should include identifying obstacles faced by investors, confidentially mapping members’ financing vulnerabilities, and preparing evidence-based recommendations. Technical discussions with the Financial Services Authority, the Indonesia Stock Exchange, and the Indonesia Central Securities Depository should produce a clear list of issues, assigned responsibilities, deadlines, and evidence needed to evaluate results.

At the company level, ownership transparency should be a priority. Investors need to understand ultimate beneficial ownership, corporate affiliations, related-party transactions, and the public float genuinely available for trading. This information must be consistent and updated whenever material changes occur. Disclosure quality also depends on whether investors can understand the information, ask questions, and receive adequate answers.

KADIN could invite listed member companies to form an initial voluntary group committed to measurable improvements in corporate governance. Companies with established practices could share their experience and help define realistic implementation standards. Those facing gaps could receive support tailored to specific weaknesses. The initiative’s credibility would depend on a willingness to report both progress and unfinished work.

Digital transformation offers another opportunity to improve market data quality. Ownership and affiliation information that is fragmented, difficult to compare, or inconsistently updated makes oversight more challenging. Data integration, consistent entity identification, and reliable audit trails can support authorities and market participants within their respective access rights. Analytics can also help identify trading patterns that warrant further examination. Their effectiveness, however, will depend on data quality, investigative capacity, and accountable follow-through.

Companies must also strengthen their financing resilience. Members with substantial capital requirements, foreign-currency obligations, or approaching debt maturities should test their cash flows against different scenarios. KADIN can facilitate discussions with banks, strategic investors, and providers of long-term capital. Such preparation would help businesses preserve their options as market conditions change, without assuming that every investor will leave Indonesia or that foreign direct investment will cease.

Developing the domestic institutional investor base should remain a long-term priority. A market supported by diverse investors is better positioned to absorb changes in capital flows. The development of pension funds, insurers, and other domestic institutions must nevertheless prioritise sound governance and the interests of beneficiaries. Public trust must be protected as these institutions expand their role in financing the economy.

Ultimately, Indonesia’s response should be judged by verifiable improvements: clearer ownership information, more effective investor protection, greater trading integrity, and more resilient access to financing. Market indexes remain important indicators, but they are influenced by many factors and cannot serve as the sole measure of reform success.

The consultation period provides an opportunity to act before a final decision is made. The government, market authorities, and businesses should use that time to establish clear responsibilities and measurable objectives. For KADIN, the most meaningful contribution is to help Indonesian companies become more credible and attractive to long-term capital. Trust earned through transparency and consistency will strengthen Indonesia’s ability to turn economic potential into productive investment and employment.