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 the perks for politicians that had triggered public fury. Earlier in the year, there were also significant protests against budget cuts affecting healthcare and education spending.
Analysts warn that these challenges highlight broader issues in public spending and oversight, which point to deeper strains in Indonesia's $1.4 trillion economy. Despite steady annual growth of roughly 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. Both countries have successfully attracted foreign companies seeking to diversify production away from China.
The protests in August, which resulted in 10 fatalities, underscored 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 they will create jobs and stimulate demand.
Airlangga Hartarto, Indonesia's Coordinating Minister for Economic Affairs, told the BBC that achieving higher growth is achievable, but it requires careful management of public finances and foreign investment. A new sovereign wealth fund, Danantara, is targeting high-impact projects across renewable energy and advanced manufacturing, which could spur higher growth, according to Adam Samdin from advisory firm Oxford Economics.
However, ambitious and challenging commitments like the free school meals program raise questions about Prabowo's priorities. Some health-focused non-governmental organizations are urging him to stop the scheme due to accusations of ineffectiveness and mass food poisonings. Indonesia faces unique challenges in infrastructure for safe and speedy meal delivery across its 6,000 inhabited islands.
In addition to domestic challenges, Indonesia's trade relations have been affected by external factors. The country now faces 19% tariffs on exports to America due to US President Donald Trump's trade war. Airlangga expressed gratitude for a competitive tariff rate but acknowledged the challenges posed by high tariffs and competition from Chinese goods redirected to Asia.
Indonesia is also seeking new markets and partners, having signed a trade deal with the European Union last month after nearly a decade of negotiations. However, attracting foreign investment remains a challenge due to concerns about red tape and the cost of doing business.
The search for investment is crucial as Indonesia invests in the digital economy to create jobs and boost growth. However, the abrupt sacking of the former finance minister Sri Mulyani Indrawati has rattled investors, while her replacement, Purbaya Yudhi Sadewa, has identified monetary mistakes as a cause of protests.
Prabowo's ambition for 8% annual growth by 2029 faces skepticism, with some economists disputing the current 5% growth rate. Despite these challenges, Airlangga remains optimistic about Indonesia's investment climate and deregulation efforts under President Prabowo. However, falling car sales, shrinking foreign investment, and contraction in manufacturing suggest economic activity is weakening.
Indonesia's economy, heavily reliant on consumption, may continue to provide a steady engine even if growth slows. The sheer size of the population will ensure some level of economic activity, but the challenges ahead for President Prabowo remain significant.
