Indonesia Central Bank Chief Calls MSCI Downgrade Warning a "Short-Term Shock" as Jakarta Index Tumbles 40%

Bank Indonesia Governor Destry Damayanti told a business gathering Thursday that MSCI's warning of a possible downgrade to "standalone" status was a "short-term shock" and the market would recover once concerns are addressed. The warning, issued this month, is more severe than MSCI's January notice of a potential demotion to "frontier" class from "emerging," citing opaque ownership and alleged coordinated trading. The main index has fallen about 40% this year, making it the world's worst performer. Destry said stock prices have become "unreasonable" for a country like Indonesia, and said reforms by the Financial Services Authority (OJK) should address MSCI's concerns. OJK head Friderica Widyasari Dewi said enforcement was the gap MSCI identified and that sanctioned parties have paid 2.1 trillion rupiah in fines. Businessman Hashim Djojohadikusumo warned the warning could trigger capital outflows and push the rupiah as low as 22,000 per dollar, versus about 18,100 currently, calling it a potential "disaster" for the economy.