Indonesia Stocks Rebound After Protests Derail Election Law

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(Bloomberg) — Indonesian pro-democracy protesters won a significant victory late Thursday, forcing lawmakers to scrap a controversial push to revise regional election laws. The stock market rallied on Friday.

The proposed changes would have effectively allowed President Joko Widodo’s youngest son to join a gubernatorial race, while reinstating nomination thresholds that could enable allies of the outgoing leader as well as President-elect Prabowo Subianto to run virtually uncontested in the elections in Central Java and Jakarta.

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The benchmark stock index gained as much as 0.8% in Friday morning trading, one of the best performers in Asia as it closed in on all-time highs. The rupiah fell a third day, dropping as much 0.4% against the dollar before paring its loss. It remained among the region’s laggards.

Deputy Speaker of Parliament Sufmi Dasco Ahmad said in a statement on X on Thursday that the government has canceled its plan to revise the laws and will abide by the Constitutional Court’s decision. There will be no imminent parliamentary session scheduled to deliberate the law, he told local news outlet Kompas. “Nothing. I assure you, nothing,” he said.

The election commission also confirmed late Thursday that it would use the court decision as the legal basis for the registration of gubernatorial and vice-gubernatorial candidates that begins early next week.

That may not quell anger and suspicion that lawmakers could still try to bulldoze through the plan before then. Indeed, Sufmi said regional election laws may be revisited by the incoming parliament as there are aspects that need to be fine-tuned.

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The retreat comes after widespread protests across major cities in Southeast Asia’s largest country rattled markets on Thursday. The rupiah fell 0.7%, its biggest drop in two months, while stocks were down 0.9%.

The impact of the political turmoil on the rupiah is “likely to wane” after the election law changes were shelved, said Alvin Tan, head of Asia FX strategy at Royal Bank of Canada.

The dip in equities is also likely temporary amid profit-taking and risk-off sentiments from the protests, said Mohit Mirpuri, a fund manager at Singapore-based SGMC Capital Pte.

“We expect a flurry of political chess moves in Indonesia from now until October, but don’t let the noise distract investors from the country’s robust secular growth story,” he said on Friday.

Read: Indonesian Protests Hit Markets, Spur Rethink of Law Changes

Thousands took to the streets and millions used social media, arguing that the current Jokowi administration was undercutting a Constitutional Court ruling earlier this week that maintained age limits and ensured smaller parties can run in regional elections in November. The ruling effectively prevented Jokowi’s youngest son, 29-year-old Kaesang Pangarep, from running as governor or vice-governor because he wouldn’t meet age requirements.

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It also effectively allows prominent Jokowi critic and former presidential contender Anies Baswedan to vie for the Jakarta governor post. Analysts have said that the move to revise the regional election legislation was also aimed at preventing Anies — a former Jakarta governor and the frontrunner in polls — from contesting.

For democracy activists, the government’s massive U-turn is a significant win. They’ve accused Jokowi of eroding the country’s democracy at the expense of furthering a political dynasty and ensuring continuity of his policies, such as the ambitious construction of a $30-billion future capital city.

Jokowi has also been accused of meddling in the recent presidential contest. A 2023 decision by the Constitutional Court — then chaired by Jokowi’s brother-in-law — eased age rules and let his eldest son make a successful run to become vice president. That decision meant that, for the first time in Indonesian history, the scion of a sitting president has become the vice-president elect.

Protests against parliament’s move to revise regional election laws started on Thursday morning and intensified through the day. Demonstrations broke out across various major cities in Indonesia, from Bandung in West Java to Padang in the island of Sumatra. Outside the parliament building in Jakarta, protesters knocked down the iron fences in the main and back entrances and demanded to enter the compound, throwing bottles at cars carrying parliamentarians. Police fired tear gas and water cannons.

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On social media platforms such as X and Instagram, Indonesians — including actors and singers — started sharing an “emergency warning” image online, with millions using the hashtag #KawalPutusanMK, calling for a defense of the court decision, which many see as supporting Indonesia’s young democracy.

Parliament postponed a vote on the law on Thursday morning, failing to reach a quorum as many lawmakers stayed away. By evening, the unrest prompted parliamentary deputies to announce that they were abandoning the revision entirely. 

The president’s office said earlier on Thursday it would abide by the Constitutional Court’s decision if lawmakers don’t change the law. “Indonesia guarantees free speech and open democracy,” spokesman Hasan Nasbi said. 

—With assistance from Norman Harsono, Catherine Ngai, Matthew Burgess and Soraya Permatasari.

(Adds market moves, comment from fund manager)

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