Key Drivers Behind Market Turmoil
1. Trigger: Outrage Over Lawmakers’ Perks
Protests erupted nationwide in response to newly proposed monthly housing allowances (~US $3,000) for lawmakers—at a time when living costs and unemployment were high. This sparked widespread public anger and mobilized civil society groups.
2. Escalation: Death, Violence, and Vandalism
Tensions surged after a police vehicle caused the death of a 21-year-old motorcycle taxi driver during a protest. This tragedy fueled further unrest, looting of officials’ homes (including Finance Minister Sri Mulyani’s), attacks on public buildings, and at least eight deaths.
3. Market Reaction: Stocks, Currency, and Bonds
The Jakarta Composite Index plunged by as much as 3% to 3.6% in early trading before trimming losses.
The rupiah weakened—falling nearly 0.9%, though it later rebounded modestly with central bank support.
10-year government bond yields ticked slightly upward, signaling rising risk sentiment.
4. Investor Sentiment: Risk Aversion Amid Uncertainty
Analysts describe the unrest as the worst since the 1998 riots that toppled President Suharto. Investor confidence is faltering, and stability now hinges on the government’s ability to restore calm, reassure markets, and resume economic activity.
5. Policy Response: Soothing Markets through Intervention
Bank Indonesia has pledged to defend the rupiah, intervening in currency markets to maintain stability.
The government has rolled out an incentive package that includes free meals for students and pregnant women, loans to boost employment, and other support measures to cushion the impact.
Summary Table
Cause Market Reaction Policy Response
Allowance scandal → protests Index dropped 3–3.6%, rupiah weakened Allowance rollback, security clampdown
Violent escalations Bond yields ticked up Central bank pledged intervention
Investor risk-off Foreign outflows, cautious sentiment Economic resilience emphasized
Bottom Line
Markets are unsettled by a combination of political missteps, social unrest, and violent incidents. While underlying economic fundamentals remain fairly solid—Q2 growth hit 5.12%, the fastest in two years—investor sentiment has taken a hit. A swift and transparent government response will be crucial to restoring confidence.
Reuters & others.