Indonesia's markets have steadied since June's "Sell Indonesia" rout, but President Prabowo Subianto's twin bet on a graft crackdown and a narrower 2027 deficit has yet to win back investors.

The rupiah stood at about IDR17,820 per dollar on September 22, according to European Central Bank reference rates, off its record low beyond 18,000 in June but still weaker than the IDR17,500 assumed in the 2027 draft budget. The Jakarta Composite Index closed at 6,277 the same day, down 22.75% since the start of the year, according to Trading Economics.

Prabowo removed Finance Minister Purbaya Yudhi Sadewa on September 14 and swore in his deputy, Suahasil Nazara, a veteran of the Sri Mulyani Indrawati era who pledged to keep the deficit below the 3% of GDP legal cap. That leaves the 2027 budget and the antigraft drive as the two tests of whether Prabowo's hard-edged, state-led model can coexist with investor confidence.

"Replacing the finance minister is a good move. The market should like it and rating agencies would already know and like Nazara," Richard Borsuk of the S. Rajaratnam School of International Studies told Reuters on September 14.

War on graft

Prabowo set out the most aggressive version of his antigraft campaign in his State of the Nation address to parliament on August 14, threatening to investigate the leaders of state-owned enterprises (SOEs) going back 30 years, saying they had operated without accountability. He floated an ad hoc court to hear such cases and suggested amnesty for those "who repent and recognize their wrongdoing", Bloomberg reported.

He also turned on the security forces over illegal mining uncovered by his administration. "How could military and police officials not have known about 1,000 mines" operating illegally, he asked.

His own government has since played the proposals down. Law Minister Supratman Andi Agtas said there were no current plans for such a court, and State Secretary Prasetyo Hadi said on August 15 that the SOE drive "has not reached the issue of amnesty", according to Antara. The clean-out of the state sector is going ahead regardless: Prabowo said 290 of the 1,074 SOEs on the books had already been closed and that more than 750 would be shut by the end of the year, AFP reported. That follows the closure of 240 insolvent state entities announced in June.

The campaign has also been dented by scandal inside the enforcement machine. Febrie Adriansyah, the deputy attorney general for special crimes who ran some of Prabowo's flagship cases, resigned in July after police found 74 kg of gold and more than $15mn in cash at a house linked to him, together worth about IDR476bn ($26.6mn). Febrie denies wrongdoing. Indonesia fell 10 places to 109th in Transparency International's 2025 Corruption Perceptions Index, and the flagship free school meals programme, costing about $15bn, is itself under a graft investigation.

The fiscal pivot

The fiscal side of the pitch came in Prabowo's budget speech the same afternoon. The government targets a 2027 deficit of 2.4% of GDP, down from an expected 2.85% this year, with spending projected at IDR4,097.2 trillion and revenue projected at IDR3,426 trillion, leaving a shortfall of IDR671.2 trillion. The government’s published budget comparison uses the original 2026 allocations; the smaller growth rates reported elsewhere use a different base.

"We will strive to reduce it further. We understand that the ideal deficit is as small as possible; in fact, our goal is a balanced budget," Prabowo told lawmakers.

The draft assumes 6% growth, an average exchange rate of IDR17,500 per dollar and Indonesian crude oil at $75 a barrel. Prabowo also told SOEs to remit IDR200 trillion in dividends to the state this year, about 41% more than the IDR142 trillion paid in 2025, and has asked sovereign fund Danantara to redirect SOE dividends to the budget. He also floated plans for a domestic commodities exchange, a financial hub and dual citizenship to lure back skilled Indonesians living abroad.

Not everyone is convinced the numbers will hold. "If any extraneous shocks hit the world economy later this year or if El Niño proves more damaging than Indonesia can predict or manage, it is possible that 2.4% would be a mirage," said Julia Lau of the ISEAS-Yusof Ishak Institute in Singapore.

The draft had still not been passed into law as of September 23, when Suahasil told the Antara Business Forum in Jakarta that 2027 spending would exceed IDR4,000 trillion for the first time. "This is not only about large spending, but also about a great responsibility," he said, according to Antara. The 2026 numbers give him some room: the deficit was IDR240.1 trillion, or 0.93% of GDP through August, with revenue up 25.4% y/y.

From rout to probation

By early June the Jakarta index had fallen 38% from a record high set five months earlier, the worst performance among more than 90 global benchmarks tracked by Bloomberg, and the rupiah breached IDR18,000 per dollar for the first time. Foreign investors had cut their holdings of sovereign bonds by IDR86 trillion ($4.8bn) in the previous 10 months, despite Bank Indonesia's 50bp rate hike in May.

A recovery followed from July, helped by S&P Global's affirmation of Indonesia's 'BBB' rating, a pledge to hold net bond issuance and the nomination of Destry Damayanti as Bank Indonesia governor after her predecessor's abrupt resignation. By August 12 the benchmark 10-year yield was about 27bp off its highest level since 2022, though Indonesian bonds were still Asia's worst performers of the year with an 8.5% loss for dollar-based investors, Bloomberg data showed at the time. Fitch and Moody's both retain negative outlooks on the sovereign.

Bank Indonesia held its policy rate at 5.75% on September 23 and offered bigger discounts on hedging costs for foreign buyers of rupiah assets, Kontan reported, with Destry saying the bank must "open room for the economy to move faster". Equity investors are also waiting on MSCI's investability review in November, which JPMorgan says is keeping global allocators on the sidelines.

"IDR may draw some support from the policy signals out of the new Finance Minister Suahasil Nazara," OCBC's Christopher Wong wrote on September 21, but "a more durable IDR recovery would probably need some easing in US rates and oil".