MSCI Cites Forex Market Issues in Indonesia Review

Morgan Stanley Capital International (MSCI) has again issued a negative assessment of Indonesia's foreign exchange market liberalization, mirroring its previous review. The institution's 2026 Global Market Accessibility Review highlights a lack of an efficient offshore foreign exchange market and persistent constraints within Indonesia's domestic market.

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There is no efficient offshore foreign exchange market, and constraints remain in Indonesia's domestic foreign exchange market.

MSCI evaluated five key criteria, including openness to foreign investors, capital flow efficiency, operational framework, investment instruments, and institutional stability. The review noted a decline in the operational framework's efficiency concerning information flow, a step down from the prior year's rating.

Wijayanto Samirin, an economist at Paramadina University, attributes MSCI's concerns to Bank Indonesia's (BI) tightening foreign exchange transaction policies. BI recently restricted foreign exchange purchases without underlying documents to $10,000 per participant monthly, a move aimed at strengthening the rupiah. This policy follows earlier reductions from $100,000 to $50,000, and then to $25,000 within the year.

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This policy keeps changing, three times just this year, and it becomes increasingly restrictive. Furthermore, policies related to export proceeds also background MSCI's concerns.

Wijayanto expressed concern that BI's policies are creating exchange controls, characteristic of frontier markets. He warned that a market disconnected from the global economy diminishes its investment appeal. He further argued that recent Indonesian policies are investor-unfriendly, predicting that a failure to adapt the national mindset could lead to a "zombie market", one that appears active but lacks real economic function.

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If we don't change the mindset, then our capital market and money market will slowly die, becoming a 'zombie' market. It looks alive, but in reality, it is dead and has no economic role.