Jakarta: When Prabowo Subianto campaigned to become Indonesia’s new president, he promised dynamic economic growth and major social change. But his first year in office has not lived up to this populist platform. Rather, his ambitious pledges have been confronted by the realities of Southeast Asia’s biggest economy.
According to BBC, a frustrated youth, worried about jobs, took to the streets in late August to protest against the rising cost of living, corruption, and inequality. The government was forced to roll back perks for politicians that had triggered public fury. Earlier in the year, there had been significant protests against budget cuts impacting healthcare and education spending. Analysts warn that these challenges highlight broader issues in public spending and oversight, pointing to deeper strains in Indonesia’s $1.4 trillion economy.
Despite steady annual growth of approximately 5% in recent years, Indonesia is feeling the pressure of slowing global demand, rising living costs, and competition from regional neighbors like Vietnam and Malaysia. These countries have successfully attracted foreign companies seeking to diversify production away from China. The protests in August, which resulted in ten deaths, demonstrated the extent of public anger over Prabowo’s government. Demonstrators accused it of prioritizing prestige policies and projects over providing economic support.
Prabowo, who has set an ambitious growth target of 8% by 2029, and his ministers continue to defend their policies, asserting that they will create jobs and stimulate demand. “We have an experience of growing beyond 7%. So… Indonesia knows that higher growth is achievable. But of course, we have to see the global economics and the global trade,” Indonesia’s Coordinating Minister for Economic Affairs Airlangga Hartarto told the BBC. Experts suggest that achieving such growth will require careful management of public finances and foreign investment.
A new sovereign wealth fund, Danantara, targeting high-impact projects across renewable energy and advanced manufacturing, could spur higher growth, said Adam Samdin from advisory firm Oxford Economics. Airlangga told the BBC that Indonesia is “ready” and willing to “spend on the right sector of the economy.” However, ambitious commitments like the free school meals program prompt some to question Prabowo’s priorities. Some health-focused non-governmental organizations urge him to halt the scheme due to mass food poisonings.
Indonesia faces unique challenges, lacking the infrastructure for safe and speedy meal delivery to schools across its 6,000 inhabited islands, said Samdin. This includes proper refrigeration transport, strict food safety standards, and resources to enforce them to keep food fresh in the tropical heat. The government relies on third parties and contractors for the program, complicating quality monitoring.
But the faltering flagship program is not Prabowo’s only challenge. The US trade war has not spared Indonesia, which now faces 19% tariffs on exports to America. Airlangga, involved in negotiations, expressed gratitude for a competitive tariff rate and indicated that he expects the US-Indonesia trade deal to be signed by the end of October. However, 19% remains a high cost for exporters, who also face pressure from Chinese goods redirected to Asia to avoid high tariffs in Europe and the US.
Indonesia, seeking new markets, signed a trade deal with the European Union last month after nearly a decade of negotiations. Airlangga expects trade with the bloc to increase by two and a half times over the next five years. Yet, investment, which has spurred manufacturing and created jobs in countries like Thailand and Vietnam, poses a challenge in Indonesia.
Foreign companies have long complained of red tape and the cost of doing business in Indonesia. Despite this, they were attracted by the large consumer base and resources like nickel, copper, and palm oil. Airlangga stated that Indonesia is investing in the digital economy to create more jobs and boost growth. However, whether it can provide enough people with the right skills for data centers and similar ventures remains a significant question.
Data centers require investment, and investors are especially rattled after the abrupt sacking of former finance minister Sri Mulyani Indrawati, whose house was ransacked in the protests. Her replacement, Purbaya Yudhi Sadewa, supports Prabowo’s ambition for 8% annual growth by 2029—a rate not achieved since the 1990s. Some economists dispute even the current 5% growth rate and suggest economic data has been politicized to meet Prabowo’s growth target. Airlangga denied this, stating, “I’m optimistic that Indonesia is still attractive,” citing “the value chain, the investment climate and the quickness of President Prabowo to do deregulations.”
Economists, however, note that falling car sales, shrinking foreign investment, contraction in manufacturing, and reports of layoffs suggest economic activity is weakening. “Indonesia’s economy is based on consumption, and so from the perspective, it can continue to provide a steady engine even if it does not grow significantly,” Samdin said. “Growth might slow, but the sheer size of the population will provide some economic activity.” Though this may reassure optimistic investors, it does not solve the challenges ahead for President Prabowo.