The global index provider MSCI has extended its review of Indonesia’s status as an “emerging” market economy until November, in order to allow it to assess a series of reforms that have been announced by President Prabowo Subianto’s administration.
MSCI first threatened the downgrade in January due to a number of transparency concerns in its stock market, including the high concentration of ownership in certain companies and the limited “free float” of shares – i.e., those openly available for public trading. Last week, in its annual Global Market Accessibility Review, MSCI also lowered Indonesia’s information flow criterion to negative, reflecting “structural issues in the opacity in shareholding structures and concerns about coordinated trading.”
In a statement on Tuesday, MSCI stated that if progress is insufficient by its November review, it “will consider a range of options for the appropriate treatment for the Indonesia market, potentially including a consultation on the reclassification of Indonesia from Emerging Markets to Frontier Markets.”
MSCI’s role as the primary benchmark for institutional investors gives it considerable power over emerging economies, and a downgrading of Indonesia to “frontier” status would likely trigger billions of dollars of capital outflows.
