The first 100 days of Indonesian President Prabowo Subianto’s administration have been marked by economic uncertainty and market instability, leaving investors and citizens alike unsure about the future. President Prabowo’s economic strategies and their consequences on Indonesia’s financial health have drawn varying reactions from experts and analysts. They point to issues such as declining stock market performance and a weakening national currency, the rupiah, as evidence of the confusion these policies have engendered. The president’s ambitious economic targets appear increasingly challenging in the face of both internal governance hurdles and external financial pressures, such as a robust US dollar and the high costs associated with issuing government bonds.
Investor Sentiment and Market Performance
Economists and market analysts have noted a prevailing sense of confusion and uncertainty surrounding President Prabowo’s economic policies. This sentiment has significantly impacted investor confidence, leading to a noticeable decline in Indonesia’s stock market and a weakening rupiah. The challenges posed by external factors, such as a strong US dollar and high bond issuance costs, further complicate the situation. Satria Sambijantoro, head of equity research at Bahana Sekuritas, highlights the underperformance of Indonesia’s stock market compared to other emerging markets. He attributes this largely to a pessimistic outlook among local companies, particularly in the banking sector, which is experiencing a marked slowdown in growth compared to previous years.
Furthermore, signs of economic deceleration are evident among major local companies, adding to investor trepidation. The banking sector, once a reliable pillar of growth with annual net profit increases reaching up to 20 percent, now faces projections of a meager 6 percent growth rate for this year. This stark disparity has fueled negative sentiment in the stock market. The overall investor sentiment toward Indonesia’s economic direction under President Prabowo has remained cautious, with market participants wary of potential shifts and unanticipated measures. These factors contribute to a broader picture of economic instability amid policy transitions and external economic pressures.
Limited Options for Economic Growth
Former finance minister Chatib Basri, who currently serves on the National Economic Council (DEN), underscores the limited options available for stimulating economic growth within the current framework. Chatib notes that Bank Indonesia (BI) finds itself constrained, with little room to maneuver on benchmark interest rates unless the US Federal Reserve makes parallel moves. However, this is highly unlikely due to prevailing inflationary pressures within the US economy. This monetary constraint further limits the avenues available to Indonesian policymakers for fostering economic activity and growth. Chatib also emphasizes the difficulties encountered in expanding fiscal policy.
High market interest rates for government bonds, combined with an already significant budget deficit, pose substantial barriers. These factors restrict the government’s ability to engage in expansive fiscal measures aimed at boosting economic performance. As a potential remedy, Chatib advocates for structural reforms aimed at enhancing regulatory certainty and removing bureaucratic hurdles that impede economic efficiency. By addressing these foundational issues, Chatib suggests that Indonesia could better position itself to achieve President Prabowo’s ambitious economic targets.
Structural Reforms and Efficiency
To meet the target of an 8 percent GDP growth by 2029, Chatib Basri recommends focusing on structural reforms, particularly within tax administration. He proposes lowering the revenue threshold required for the 0.5 percent tax rate, even though he acknowledges this move might be unpopular with certain segments of the population. Such unpopular measures, however, could be necessary for creating a more predictable and efficient regulatory environment. Additionally, Chatib supports targeted budget cuts that are based on thorough audits designed to identify and eliminate inefficient projects. He cites Kertajati Airport as an example of a project that may require reassessment owing to questions about its effectiveness and impact.
Yose Rizal Damuri, executive director of the Centre for Strategic and International Studies (CSIS), concurs with the need for greater government efficiency through spending cuts. Though he also points out the lack of clear and defined criteria for determining which parts of the budget should be scaled back. This absence of clarity adds another layer of confusion within the government and the broader economic landscape. Yose emphasizes the importance of coherent and transparent criteria in ensuring that spending cuts are productive rather than detrimental, helping to create a more streamlined and efficient government structure.
Decision-Making and Bureaucratic Challenges
The initial 100 days of Indonesian President Prabowo Subianto’s tenure have been fraught with economic instability and market volatility, leaving both investors and the general public uncertain about the nation’s trajectory. Prabowo’s economic policies have sparked mixed reactions among experts and analysts, who cite declining stock market performance and a depreciating rupiah as indicators of the confusion these policies have created. The president’s ambitious economic goals are proving to be more difficult to achieve amid significant internal governance challenges and external economic pressures. Factors such as a strong US dollar and the high costs of issuing government bonds have exacerbated the situation, complicating the government’s financial strategies. As Indonesia navigates these turbulent conditions, the comprehensive impact of Prabowo’s economic agenda will continue to be scrutinized by both domestic and international observers, who remain vigilant about the potential long-term consequences for the nation’s financial health and stability.
