Indonesia is tightening capital controls and other emerging markets could follow suit

Subscribe to enjoy similar stories. Back in the day, when a country’s currency was under pressure, the worst thing it could do was impose capital controls. Stopping money from leaving might work temporarily, but it would cause investors to lose faith and shut the country out of financial markets in the long run.

In a laissez-faire world of globalization, nothing could be worse than that. Indonesia is challenging that assumption and may prove that we operate in a completely different global economy now. Last month, the rupiah hit a record low, driven by worries about President Prabowo Subianto’s economic policies.

He seemed willing to widen the fiscal deficit, which was higher in 2025 than it has been for two decades (excluding the pandemic years). And the nomination of his nephew to the central bank’s board didn’t help. MSCI last week warned the market may be downgraded to frontier status unless transparency improves, prompting a flurry of activity from regulators to try and shore up confidence.

The benchmark Jakarta Composite Index fell 5.1% Monday. At the same time the rupiah was falling, Indonesia announced a tightening of rules governing how exporters are allowed to spend their money. From January, companies in the country’s natural resources sector will have to keep the foreign exchange they earned locked up in state-controlled parts of the financial system for at least a year.

Only half of what they deposit can be used, once it is converted into rupiahs, to pay down loans or buy more inputs. This is a significant escalation of Jakarta’s attempts to control how export revenue is used. Over the past few years, policymakers have focused on trying to figure out how to ensure that the country’s mineral