IHSG Plummets, ULM Observer Emphasizes Dominance of Domestic Factors and Importance of Fiscal Stability
Banjarmasin – The Composite Stock Price Index (IHSG) experienced a sharp correction of up to 6.12 percent or equivalent to 395.86 points on Tuesday, March 18, 2025. As a result of this significant decline, the Indonesia Stock Exchange (IDX) was forced to temporarily stop trading activities or conduct a trading halt.
According to Economic Observer from Lambung Mangkurat University (ULM) Dr. Hidayatullah Muttaqin, M.E., the weakening of the IHSG was caused by a combination of global and domestic pressures, with the dominance of internal factors worsening market sentiment. “When the IHSG experienced a sharp decline, the majority of Asian stock exchange indices actually moved positively. This indicates that domestic factors play a major role in the plunge in the IHSG,” explained Dr. Hidayatullah.
One of the main causes from the external side is concerns about the protectionist policies of the President of the United States, Donald Trump, which have increased global uncertainty. However, Dr. Hidayatullah assessed that internal factors were much more influential, especially the controversial fiscal policy of the Indonesian government.
“The cuts in state budget spending by President Prabowo’s government, although claimed as an efficiency measure, actually weakened strategic sectors such as infrastructure, education, and health. This has an impact on decreasing investor confidence in the national economic prospects,” he explained.
He also highlighted the allocation of the budget from the cuts which was directed to the MBG and Danantara programs. According to him, the two programs were prepared without careful planning and actually burdened the country’s fiscal.
“With a long track record of corruption cases in Indonesia, as well as the emergence of major scandals recently, the credibility of the governance of the Danantara program is questionable,” he added.
Dr. Hidayatullah explained that the involvement of state-owned banks in the Danantara program also increased systemic risk in the financial sector. “This condition triggered a massive sell-off in the capital market because investors viewed it as a high-risk step,” he said.
In addition, the increasing number of layoffs and weakening purchasing power of the community also worsened market conditions. The decline in household consumption as the main pillar of economic growth and social uncertainty due to the wave of layoffs put additional pressure on the market.
“Unfortunately, the government’s slow response in responding to this condition has worsened the perception of risk in the eyes of investors,” he said. In closing, Dr. Hidayatullah recommended that the government postpone the implementation of major programs that are not yet mature, strengthen fiscal governance, and prioritize domestic economic stability in order to restore investor confidence and boost people’s purchasing power.
