A protester walks with an Indonesian flag in front of a police headquarters that was set on fire and looted during demonstrations in Surabaya on August 31, 2025.
Juni Kriswanto | Afp | Getty Images
Indonesia is facing a tough political climate, as it grapples with protests over rising living costs, lawmakers’ pay and police violence, hurting investor sentiment in Southeast Asia’s largest economy.
The Jakarta Composite Index fell as much as 3.6% on Monday, while the Indonesian rupiah depreciated to 16,500 against the U.S. dollar — its weakest intra-day level since Aug. 1 — according to LSEG data.
While the violence and protests have rattled investors confidence, they are unlikely to challenge the underlying growth story for Indonesia, several market watchers said.
The latest selloff was primarily “sentiment driven,” as investors reacted to developments over the weekend, said Howe Chung Wan, managing director and head of Asian fixed income at Principal Fixed Income.
Indonesia still ranks among the more stable emerging markets, Howe said, shrugging off impact from the demonstrations as a near-term setback. “I don’t think it completely changes the story at this point.”
The near-term potential softness for rupiah is expected to be temporary and will likely reverse when domestic uncertainties fade, according to Christopher Wong, FX analyst at OCBC Bank. He refrained from giving more precise forecasts, citing heightened uncertainty.
It was unclear if demonstrations in Jakarta or other cities will continue on Monday, with some Indonesian students and civil society groups having called off protests to avoid any violent escalation by authorities.
Investors will watch the government’s next steps to address the public’s demands and improve market confidence, said Ari Jahja, head of Indonesia research, Macquarie Capital. “On slight positive side, Indonesia could emerge stronger if structural reforms are executed.”
Radhika Rao, economist at DBS, agreed that the long-term growth drivers remain intact for Indonesia. Investors will watch for any signs of the government’s priority to boost growth and jobs, she said, expecting part of Jakarta’s spending cuts could be redirected to alleviate unemployment.
Bank Indonesia still has ample room to keep policy accommodative, she said, expecting the central bank to act swiftly to calm markets and step in to support the rupiah when it’s due.
Yields on Indonesia’s 10-year government bonds ticked higher to 6.335 on Monday while yields on the 30-year debts were little changed at 6.850, according to LSEG data.
What’s fueling protests
Thousands of protestors in several major cities in the Southeast Asian nation have rallied for for about a week, demonstrating against increasing cost of living, high unemployment rate and what many see as excessive pay for lawmakers.
Lawmakers’ housing allowances which are said to be 10 times the country’s monthly minimum wage at a time when tax hikes, layoffs and inflation have hit lower-income Indonesians, have been key to stoking public anger.
That discontent over economic hardship has morphed into a broader outrage after a motorcycle taxi driver was reportedly killed during police action at a protest site last Thursday. That incident set off a wave of violent protests across several Indonesian cities, calling for a police reform.
Protests intensified over the weekend, with rioters targeting the homes of lawmakers, ransacking and looting properties, and burning government buildings, according to media reports. Hundreds of people reportedly stormed finance minister Sri Mulyani’s residence in South Tangerang, forcing their way in and taking away valuables.
In an attempt to quell the public anger, Indonesian President Prabowo Subianto said on Sunday the country’s parliament would listen and act on people’s concerns, pledging to curb hefty allowances for lawmakers.
Indonesia, the world’s fourth-largest economy with a population of 284 million, had been seen as one of Southeast Asia’s most stable economies. The latest protests, which killed at least five and injured hundreds, created the worst crisis for the country since Subianto took office about a year ago.
“This moment represents a key test for Prabowo’s approach to dissent,” said Bob Herrera-Lim, managing director at political consultancy Teneo. “The president may worry that continuing to yield ground on the streets for more than a few days may generate the impression that he is encouraging a popular opposition to emerge to challenge his government”
The president has warned that firm action will be taken against violent demonstrators. “We cannot deny that signs of extrajudicial, even unlawful, actions are beginning to emerge, some even leading to treason and terrorism,” he reportedly said, while ordering the military and police to take stern action against rioters and looters.
