LONDON: Having won with ease in the first round of February’s elections, Indonesia’s president-elect Prabowo Subianto is set to inherit a strong economy from Joko “Jokowi” Widodo. However, he will have to wrestle with the challenge of taking Indonesia to the next level.
Selecting the right personnel is seen as crucial to this objective. Indeed, as Mr Prabowo gears up for his inauguration in October, there has been much speculation about the composition of his incoming Cabinet.
Will he reward members of his victorious electoral coalition or might familiar faces from President Widodo’s current government hang on to their posts?
While Indonesian media tracks the various runners and riders, from Trade Minister Zulkifli Hasan to the embattled Finance Minister Sri Mulyani Indrawati, there is a more holistic debate to be had about the direction of the Indonesian economy as Mr Prabowo lays out ambitious plans for the archipelago nation of more than 275 million.
Speaking at the Qatar Economic Forum in Doha recently, the former general nodded to the “strong foundation” built by Mr Widodo and pledged to increase economic growth to 8 per cent within the next two to three years.
“I am very confident we can easily achieve 8 per cent and I am determined to go beyond,” he said.
AN EASY OR CHALLENGING TARGET?
Will Mr Prabowo be able to achieve his target as easily as he claims? How will he do so, and what challenges does he face?
Southeast Asia’s largest economy expanded by 5.11 per cent year-on-year in the January-March period. The government aims to achieve 5.2 per cent growth for 2024, up from 5.05 per cent last year.
Mr Prabowo has said that he will continue Mr Jokowi’s so-called “commodity downstreaming” policy, where natural commodities are processed onshore. The policy has seen Indonesia ban the export of raw materials such as nickel, in order to manufacture them domestically into higher-value products, such as batteries for electric vehicles.
Mr Prabowo has also emphasised that his “core focus” in government would be improving energy and food security. In sum, the president-elect has clear goals – “Indonesia must be self-sufficient in food” – and he will not be afraid to intervene in the economy, as Mr Widodo has done, to meet them in full.
Despite this clarity of thinking, there are financial forces outside of the incoming president’s control that pose a challenge to his ambitious agenda to right certain wrongs in Indonesian society, including high rates of malnutrition amongst children.
About 21 per cent of Indonesian children under five had stunted growth in 2022, about 4.5 million children, according to an official survey. The government aims to reduce the rate to 14 per cent this year.
To do so, Mr Prabowo has pledged to provide “free nutritious food for children”, which could cost as much as 400 trillion rupiah (US$25 billion) annually. But the price tag has raised concerns about budgetary sustainability.
FINANCE MINISTRY UNDER PRESSURE
Meanwhile, Finance Minister Sri Mulyani is coming under pressure to act as the Indonesian rupiah continues its slide. The currency has depreciated by 5 per cent against the US dollar in 2024 alone, fuelling import inflation which has now surged back past 3 per cent in a blow to consumers.
Markets had been expecting a cut in interest rates, which are contractionary at 6.25 per cent, but there is now a consensus that there won’t be a change until this summer.
At least a depreciating rupiah has helped Indonesian exports, which rose for the first time in 11 months in April, by 1.72 per cent from a year earlier to US$19.62 billion. In terms of non-oil and gas exports, China remains the top destination for Indonesian goods (US$4.28 billion), ahead of India (US$1.81 billion) and the United States (US$1.75 billion). Nonetheless, economists had expected a much more significant increase in exports.
The Finance Ministry has also faced criticism for a series of incidents perceived as stymying commerce, following complaints of seemingly erroneously hefty fines levied on some Indonesian firms and individuals attempting to receive goods from overseas.
One was that of Radhika Althaf, a keen soccer player who reportedly incurred 31 million rupiah (US$1,900) in customs duties for a pair of boots he bought from overseas that cost just a fraction of the eventual tax.
In another case, a December 2022 delivery of braille keyboards from South Korea to a school for special needs children in Indonesia was reportedly held up for more than a year because the recipient had been unable to pay 361.03 million rupiah in customs duties.
In April, former World Bank managing director Mdm Sri Mulyani released a statement on Instagram to address the issues, promising to improve the customs service to better protect law-abiding consumers and businesses.
CHARGING AHEAD
Like any incoming leader, Mr Prabowo will be working to establish what worked during his predecessor’s time in government – and much has under the reformist Widodo – and what needs urgent attention.
Indonesia is seeking to become the first Southeast Asian member of Organisation for Economic Co-operation and Development (OECD) in the next three years, with hopes that the membership will bring more investment and trade deals.
Mr Prabowo will have to show significant savvy to do so, thereby accelerating the gains of the Widodo era to win high-income status for Indonesia. That said, his political comeback from two election defeats in 2014 and 2019 to storm to victory in the polls this February certainly demonstrates his remarkable capability to defy the odds.
Dr Samir Puri is Visiting Lecturer at King’s College London and former Senior Fellow at the International Institute for Strategic Studies-Asia based in Singapore.