Fitch Ratings: Jakarta Riots Potentially Disrupt Indonesian Credit Profiles

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Fitch Ratings: Jakarta Riots Potentially Disrupt Indonesian Credit Profiles

JAKARTA - The international rating agency Fitch Ratings highlighted the potential negative impact of the riots that occurred in Jakarta and a number of other regions in Indonesia on the economic prospects and stability of state fiscals.

The demonstration, which was initially triggered by plans to increase allowances for members of the House of Representatives, expanded and increased after an online motorcycle taxi driver was killed by the actions of security forces deployed to control the crowd on August 28.

Following the violence, the government withdrew several controversial policies, including plans to increase the allowance.

Nonetheless, Fitch believes there is still a risk that social tensions will continue as deeper issues are likely to persist, and this could be a political challenge for the president and the governing coalition, even though they have a large majority in parliament.

In its report, Fitch stated that the high level of public dissatisfaction, which is reflected in recent demonstrations of violence, could burden Indonesia's credit profile if it interferes with medium-term economic growth or triggers a spike in government spending beyond budget targets, which could increase the risk of widening the fiscal deficit.

Although tensions had eased, Fitch warned that the root of social problems still had the potential to trigger further tensions.

Issues such as rising living expenses, weak economic conditions for some people, as well as reallocating the budget for priority programs such as eating nutrition for free, are factors that trigger public dissatisfaction.

In addition, controversial policy changes such as easing military boundaries in politics in March 2025 have also sparked a wave of protests.

According to Fitch, prolonged unrest could undermine the trust of business actors and consumers, as well as hinder the entry of direct foreign investment (FDI), especially amid opportunities from global supply chain shifts and increasing external pressures such as higher US import rates.

The decline in FDI risks increasing Indonesia's dependence on the portfolio's more volatile capital flow to finance the current account deficit which is projected to reach 1.3 percent of GDP by 2025 and 1.7 percent by 2026.

However, CAD Indonesia is expected to remain moderate when compared to historical standards, and large foreign exchange reserves provide a buffer to external financing pressures.

Meanwhile, Fitch last confirmed Indonesia's credit rating at the BBB level with a Stable Outlook in March 2025. However, this institution noted that Indonesia's governance indicators, especially in terms of political stability, are still below the average other countries in the same ranking category.

In addition, Fitch also warns that protracted social tensions can have an impact on other aspects of governance, including the effectiveness of the government, especially if economic policies become disrupted.