Indonesia races to avoid MSCI downgrade with robust market reforms

Jakarta (ANTARA) - Indonesia is taking "serious" steps to accelerate capital market reforms after global index provider MSCI warned the country risks a downgrade to frontier market status if it fails to demonstrate sufficient progress, a top official said.

Friderica Widyasari Dewi, a member of the Board of Commissioners at the Financial Services Authority (OJK), stated that regulators and the Indonesia Stock Exchange (IDX) are actively addressing international investors' concerns.

OJK officials met with MSCI in New York two months ago to discuss structural reforms.

"We want to emphasize transparency," Friderica told reporters on the sidelines of the Maybank Indonesia Sustainable Finance Forum 2026 here on Tuesday.

The regulatory push follows MSCI’s 2026 Market Classification Review, released last week, which acknowledged Indonesia's recent reform roadmaps but stressed that global institutional investors need to see "consistent implementation and sustained effects" across the market.

MSCI warned that if adequate progress is not visible by its November 2026 Index Review, it will consider further options, "potentially including a consultation on the reclassification of Indonesia from Emerging Markets to Frontier Markets."

A downgrade could trigger significant capital outflows, as passive global funds track indexes tied to specific market tiers.

To prevent a downgrade, OJK has already implemented several key measures to improve market accessibility and transparency.

The regulator slashed the threshold for mandatory disclosure of shareholder identity from 5 percent to 1 percent and adjusted guidelines regarding Ultimate Beneficial Owners to align with MSCI's expectations.

Furthermore, OJK is backing a phased plan to double the minimum free-float requirement for listed companies from 7.5 percent to 15 percent, while pledging strict enforcement measures, including sanctions and potential delisting for non-compliant firms.

Additionally, OJK has instructed the head of the IDX to hold routine technical meetings with MSCI to iron out remaining issues.

Among the lingering pain points is the flow of market information, particularly the availability of timely English-language disclosures for foreign investors.

In its 2026 Global Market Accessibility Review, MSCI rated 10 out of 18 criteria for Indonesia at its highest grade, reflecting alignment with global best practices.

However, it handed negative ratings to both Information Flow and Foreign Exchange Market Liberalization, signaling areas that require urgent improvement before the crucial November assessment.

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Translator: Rizka Khaerunnisa, Aditya Eko Sigit Wicaksono

Editor: M Razi Rahman

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