Indonesian President Prabowo Subianto has accused MSCI of attempting to “intimidate” Indonesia, after the global index provider threatened to downgrade the country due to serious stock market transparency issues.

In a statement on October 16, MSCI announced that it had launched “a consultation on a proposal to reclassify the MSCI Indonesia Indexes from Emerging Market to Standalone Market status.” Among its concerns are coordinated trading practices, the high concentration of ownership in certain companies, and the limited “free float” of shares – i.e., those openly available for public trading.

Speaking to his cabinet yesterday, Prabowo said that MSCI “intended to intimidate us,” Reuters reported. “I simply say to the MSCI: the Indonesian nation fears no one and will not be cowed… We possess strength, we have courage, we are willing to make sacrifices, and we refuse to surrender.”

MSCI’s proposal was more serious than its threat in January to downgrade Indonesia to “frontier market” status due to the transparency concerns in its stock market. The “standalone market” category, which includes the likes of Argentina, Lebanon, Palestine, Ukraine, and Zimbabwe, is a rung below “frontier market.”

MSCI said last week that it decided on a more serious downgrade because the long list of reforms announced by Indonesian policymakers to address its concerns had not achieved “sufficient progress.”

“Despite the announced reforms, significant concerns remain around market dysfunction, including continued suspected coordinated trading behavior and lack of evidence of meaningful enforcement,” it stated. “Feedback from market participants suggests that a reclassification to Frontier Markets would not properly recognize the depth of the market problems.” MSCI said that it “expects to proceed with the proposed reclassification” barring clear evidence of “material improvements in market governance and functioning.”

The announcement prompted a bloodbath on the Jakarta Composite Index, which plunged by around 15 percent over two days of trading. The Indonesian stock market has been among the worst performing in the world in 2026, losing around 40 percent of its value, while the rupiah has fallen to levels not seen since the Asian financial crisis of 1997-1998.

The prospect of a further outflow of capital – a likely result of a downgrade to “standalone” status – has heaped pressure on Prabowo’s administration, which since coming to office in late 2024, has rattled markets with its centralized and free-spending approach to economic management. This has included both a multibillion-dollar free meal program and an increase in the state’s involvement in the Indonesian economy.

Perhaps less important than specific policies is Prabowo’s volatile, unpredictable and highly personalized style of economic governance, which represents a significant change from the conservative stewardship of the past few administrations. In March, both Moody’s and Fitch announced ratings outlook downgrades for Indonesia, with the latter citing the “increasing ⁠policy uncertainty and erosion of Indonesia’s policy mix consistency and credibility” and the “growing centralization of policymaking authority.” George Xu, a Director in Fitch Ratings’ Sovereigns team, said in a statement on Tuesday that MSCI’s announcement and the subsequent market sell-off only “reinforce the risks” identified by Fitch during its downgrade in March.

Prabowo’s defiant remarks about the MSCI threat, which have also been echoed by other Indonesian politicians in recent days, are characteristic of his political style and nationalist leanings. They are also unlikely to do much to address the growing concerns about Indonesia’s investability, making it likely that Indonesia will face more economic turbulence during the remainder of his term.