MSCI Inc. officials joined a call on Tuesday afternoon Jakarta time, many of the more than 100 participants were investors still reeling from the index provider’s sudden warning of a potential double downgrade for Indonesia. They questioned the need for such a drastic step and wanted to know whether the country stood a chance of retaining its emerging-market status.

Indonesia’s case is not an index issue but a market issue, MSCI Managing Director Raman Aylur Subramanian said on the call hosted by UBS Group AG, according to people familiar with the matter, who asked not to be identified discussing private information. There’s a need for reforms to weed out the “bad actors,” he added, the people said.

Subramanian’s comments made one thing clear: as Indonesia races against time to avert the double blow to its status, success will rest on convincing MSCI and global investors that it can effectively regulate its stock market.

MSCI’s warning last week was explicit in that new rules alone won’t be enough to turn the tide. With a little over eight months until its June 2027 decision, the challenge for authorities is to build a convincing record of enforcement — uncovering opaque ownership, investigating suspicious trading and imposing strict penalties, including on companies linked to some of the country’s most powerful business groups.

The task is formidable, with Indonesia’s rank in global markets on the line. A move to standalone-market status would push it outside even the index provider’s frontier-market universe, potentially triggering billions of dollars in outflows. That’s when global investors have already sold a net $5.3 billion of local shares this year, set for the biggest outflow on record.

“The problem isn’t the rules, which Indonesia has already tightened, but continued suspected manipulation and weak enforcement,” said Stephen Wu, managing partner of Carthage Capital, an options-trading hedge fund. “Fixing it in time is possible but tough, because they can’t legislate their way out and have to show real behavioral change.”

That, Wu added, will mean “going after politically connected conglomerates and sustaining it for a few quarters.”He said the odds favor a downgrade, with either a frontier status or a delay the realistic middle ground “if enforcement gets serious fast.”MSCI’s warnings reflect deeper doubts among global funds about whether share prices and trading volumes in Jakarta’s market reflect genuine investor activity. Obscure ownership structures, concentrated holdings and suspected coordinated trading have cast a shadow over both proper price formation and reported free float — the portion of a company’s shares considered available for public trading.

Those concerns are particularly relevant given that many listed Indonesian firms sit within sprawling family-controlled conglomerates spanning industries from mining and tobacco to petrochemicals. Control can extend through relatives and affiliated entities, leaving relatively fewer shares in public hands.

“Fixing the equity market requires forcing company owners to list more of their shares,” said Hasnain Malik, head of emerging market equity and geopolitics strategy at Tellimer. “The problem is some of those owners may not need the capital or are sitting on inflated share prices because they are not liquidly traded.”Subramanian defended MSCI’s approach during the UBS call, saying that the firm’s assessment was based on feedback gathered from market participants and that MSCI applies an objective framework in reaching its conclusions, the people familiar said.

The index provider had been privately signaling to Indonesian officials in recent meetings in New York and Jakarta that the market’s problems have not been fixed, according to other people familiar with the matter, who asked not to be identified discussing private information.

In one such meeting on Aug. 31, a top MSCI executive conveyed how Indonesia needed to set up a “nuclear deterrent” against market manipulation that goes beyond financial penalties, referring to Hong Kong and the US as examples of where there are stringent enforcement regimes, according to people familiar with the discussion. The executive also highlighted how Indonesia lacked the technology and surveillance systems needed to identify irregular trading patterns and prevent market abuse.

In another meeting on Sept. 23, Indonesian officials were taken aback by MSCI Chief Executive Henry Fernandez’s sense of alarm over the state of the stock market, another person familiar with the matter said. They asked for recommendations that they could relay to President Prabowo Subianto, which Fernandez agreed to email over, the person said.

“MSCI will continue to monitor developments in the Indonesian market and engage with market participants and authorities,” the index provider wrote in an emailed response to questions. It added that MSCI doesn’t disclose details of its meeting schedule.

“We regularly meet market participants to discuss their market experience, and with regulators and government agencies and officials to understand their views and perspective. The current consultation reflects this policy of engagement,” MSCI said in its statement. A representative for UBS declined to comment.

Indonesian authorities have moved to improve ownership disclosure and identify highly concentrated stocks since MSCI’s first warning in January sent local equities into a tailspin. The firm’s threat of a double downgrade sparked the benchmark Jakarta Composite Index’s worst selloff in nearly three decades on Friday, intensifying pressure on regulators to act and prompting more corrective measures.

“Despite the announced reforms, significant concerns remain around market dysfunction, including continued suspected coordinated trading behavior and lack of evidence of meaningful enforcement,” MSCI said in an Oct. 15 statement. It didn’t say how many cases, penalties or months of cleaner trading would be enough before its review.

Following a meeting with MSCI representatives on Monday, the Indonesia Stock Exchange said it will remove companies with highly concentrated ownership from the calculation of the benchmark index. The list includes about 80 companies.

Even so, getting rid of those stocks from the benchmark may do little to address the underlying conduct that has troubled MSCI. Their shares will continue to trade, while questions over their ownership, true free float and trading patterns remain — underscoring the gap between cleaning up an index and demonstrating that the broader market itself is functioning properly.

The list was insufficient and the selection criteria was unclear, Subramanian said on Tuesday’s call, which included mostly foreign investors representing passive and active funds, according to the people familiar.

Indonesia now has until the end of April, when MSCI’s consultation on the double downgrade closes, to demonstrate any changes it makes are indeed producing sustained improvements. Meantime, down more than 38% so far in 2026, the JCI remains this year’s worst performer among more than 90 global indexes tracked by Bloomberg.

“Indonesia should take this opportunity to move disclosure and enforcement closer to global norms,” said Charu Fernando, London-based chief investment officer at Edgbaston Investment Partners, which oversees $858 million across its Asia-Pacific equity investment strategy and counts Indonesia as its third-largest country exposure. “There is currently momentum and political will to do this, and this time should not be wasted.”