Investor flight, policy shifts undermine the capital market

Indonesia’s capital market is facing mounting headwinds as the number of initial public offerings (IPOs) in 2025 has fallen far short of expectations, with only 22 companies going public by September against the year’s target of 66. The outlook has further deteriorated amid nationwide riots that have triggered massive capital outflows on fears of political instability, while investor confidence took another blow after a recent cabinet reshuffle saw Finance Minister Sri Mulyani—long regarded as a trusted figure with strong international credibility—step down from her post.

The 22 new issuers so far this year have collectively raised Rp10.39 trillion (US$632.73 million). Market observers note that none of these IPOs stand out as particularly large. For comparison, last year’s biggest offering came from PT Adaro Andalan Indonesia (AADI), which issued 778.68 million shares at an offering price of Rp5,550 per share, raising an estimated Rp4.32 trillion. That single transaction alone is comparable to nearly half of this year’s total proceeds.

Looking ahead, the Financial Services Authority (OJK) reports that there are currently seven companies in the IPO pipeline for the Indonesia Stock Exchange. Of these, four are medium-scale firms with assets ranging between Rp50 billion and Rp250 billion, while three are classified as large-scale companies with assets above Rp250 billion.

Even before the recent unrest, investors had grown increasingly wary of Indonesia’s direction. Concerns had been mounting over the government’s encroaching militarization of civilian affairs, looming state budget cuts, and signs of eroding legal certainty—all of which clouded the country’s investment climate. These anxieties were already reflected in capital market flows earlier in the year.

By late July 2025, foreign investors had pulled a cumulative Rp 59.59 trillion from Indonesian assets, underscoring the persistent unease. The situation then deteriorated sharply following the eruption of nationwide riots in early September. Between September 1–3 alone, capital flight surged by another Rp 16.85 trillion, pushing total net outflows past Rp 90 trillion as of September 10. These figures underscore the rapid escalation of investor anxiety as political instability deepened.

Compounding the crisis, the resignation of Finance Minister Sri Mulyani—a globally respected figure and something of a symbol of Indonesia’s fiscal discipline, especially during the COVID-19 pandemic.

Though her removal had long been a subject of rumors, her official resignation spurred a sharp drop in the rupiah, over 1 percent in a single day, and a 1.6 percent slide in the Jakarta composite index (JCI), prompting intervention from Bank Indonesia. From an investor’s standpoint, Sri Mulyani’s resignation is seen as confirmation that the government is shifting toward more politically driven fiscal policies. Her exit reinforced the perception that fiscal prudence and market discipline are being deprioritized in favor of programs designed to shore up short-term political support. This shift has heightened fears that Indonesia’s risk premium will rise further as debt issuance and spending expand beyond sustainable limits.

For years, Sri Mulyani had been one of the strongest internal critics of the Prabowo administration’s strategy of accelerating growth through massive government programs and costly social services. While her reputation as a technocrat with deep international credibility helped temper investor concerns, her departure signals that such opposition no longer carries weight in shaping policy. To many observers, it marks a decisive turn away from fiscal restraint toward a more expansionary, politically driven path.