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

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 wealth—particularly from nickel, of which it is the dominant producer—can be put to work elsewhere in its economy.

But this latest effort reveals a growing threat to the assumptions of globalization. It is a move that its peers in Asia and elsewhere might adopt. The bet that Indonesia’s leaders are taking is simple: They will be able to keep the dollars they earn at home, bolstering reserves and easing the governments’ ability to finance spending, and investors will still be interested.

This is a pretty big wager—especially when your stock market has just lost $80 billion in the worst sell off since the Asian crisis of 1998. But it is one that its peers will be watching carefully.

Malaysia used to compel its exporters to convert most of their foreign exchange to ringgit; Thailand has gone in the opposite direction, loosening controls on the repatriation of export earnings, but that’s because it is trying to prevent the baht from strengthening. Either way, it looks like management of exporters’ foreign-exchange earnings will become a standard part of the Asian toolkit.

For countries that believe they are irresistible to investors, controlling the outward movement of capital is tempting. Under globalization’s harsh rules, such controls should cause future investors to look elsewhere. But Jakarta seems positive that, come what may, people will need its nickel and its palm oil, and keep putting money into the country to get those resources out.

They may be right. The International Energy Agency predicted in 2021 that the demand for nickel would increase 20 times in 20 years. Other metals like cobalt and lithium will see similar increases. With numbers like these, places at the centre of the critical-minerals rush over the coming decades could well lock up profits for a year or more and still see investment flow in.

Other countries might be confident in different ways. India, for example, believes that the size of its domestic consumer market will keep foreign companies interested. Over time, New Delhi has raised taxes on how much local major multinational corporation subsidiaries can pay their home offices in return for the use of their brand names and technology. It’s currently at 20%, and may well increase in the future, perhaps to the Philippines’ 30%.

Emerging-market policymakers will point out that, conceptually, this isn’t that different from how, say, the EU views the profits that big US tech companies make. As their access to markets in the West narrows, they are going to look for some way to balance the relationship.

New-age capital controls are just another way in which the fragmentation of the global economy, the growth of supply-chain bottlenecks and the re-emergence of industrial policy is going to make things tough for investors. It’s no longer your decision entirely how you spend your earnings; states will step in, when they can, to repurpose that cash to their own ends. Once, the world economy seemed as simple as a spreadsheet. Now it’s a lot more complicated. ©Bloomberg

The author is a Bloomberg Opinion columnist.