Why Australian money still stays away from Indonesia

Australia talks a lot about moving closer to Southeast Asia. Its money has been going the other way. Writing for the Lowy Institute's The Interpreter, Iona Main says Australian investment in the region has fallen since 2022 to about $104 billion, less than half of what Australians hold in New Zealand, and three quarters of that sits in Singapore alone. Indonesia has nearly 300 million people and is expected to be the world's fourth-largest economy by 2050. Australia has a "measly" $7 billion invested there, in Main's words.

The reasons are old and new. Indonesia has long been a difficult market for outsiders, because rules can change without warning and corruption is common. Australia's big institutional investors, above all its pension funds, are bound by law to be careful with other people's retirement savings, and few of them know Indonesia well. The past two years made the numbers worse. Net foreign flows into Indonesian shares and government bonds are down about 7% since Prabowo won the election in February 2024, which means foreigners have taken more money out than they put in, and the rupiah has fallen a record 11% against the US dollar over the same period. Main also warns that Indonesia is at serious risk of being moved down from an "emerging market" to a "frontier market", a lower group that many large global funds are not allowed to buy into.

Her suggested fix is small and practical. Governments cannot order private money to move, but they can pay for the dull early work that turns an idea into something a bank will lend against: feasibility studies, legal advice, honest cost estimates. Australia already funds tools for this, including KINETIK, a $600 million program for sustainable infrastructure in Indonesia, and Main says they should be used fully. Smaller deals, but more of them, as the Indonesian saying she ends on has it: sedikit sedikit lama-lama menjadi bukit.

Why it matters

Foreign capital pays for ports, power plants and factories, so every project that never gets funded is a set of jobs that never appears. If you work in construction, mining services or renewables, watch whether Canberra actually pays for project preparation, because that is the step where most deals die. The bigger risk sits underneath: if Indonesia is reclassified as a frontier market, a whole class of foreign funds stops buying Indonesian shares and bonds, which adds more pressure on the currency your salary is paid in.