On Sunday, October 20, 2024, Indonesia officially sworn in its eighth President, retired general Prabowo Subianto.  

 

Mr. Prabowo inherits an economy marked by steady 5% growth, increased debt, and ambitious infrastructure projects from his predecessor, Joko Widodo, also known as Jokowi. While initiatives like the new toll roads as well as the new capital Nusantara improved connectivity, they also raised the debt-to-GDP ratio to 39%, straining fiscal resources. Jokowi’s focus on tax reforms and subsidy cuts aimed to boost fiscal space, but rising commodity prices caused subsidies to rise again, complicating budget management. Efforts to strengthen domestic industries through resource nationalism, especially in nickel processing, opened new opportunities but created trade tensions. Prabowo now faces the challenge of continuing growth while balancing fiscal discipline and investor confidence. 

 

Through his programs, Prabowo aims to achieve an economic growth of 8% – higher than the 7% targeted by his predecessor, and which was never achieved. Below is a list of the economic situation left behind by Jokowi, and how Prabowo plans to tackle them: 

1. Infrastructure Development  

• Inherited Condition: Jokowi's administration heavily invested in infrastructure, including roads, ports, and the ambitious new capital city, Nusantara. These projects enhanced connectivity but also increased public debt, putting a strain on fiscal resources. 
• Prabowo’s Approach: Prabowo plans to continue these infrastructure projects, particularly the new capital development, as a key part of his economic agenda. By pushing ahead with these investments, he aims to stimulate economic activity, create jobs, and encourage regional growth. However, this will require careful fiscal management to avoid further burdening the national budget. 
  
   

2. Fiscal Policy and Foreign Investment 

• Inherited Condition: Jokowi maintained a generally conservative fiscal policy, with a budget deficit cap of 3% of GDP, though this was temporarily relaxed during the pandemic. By the end of his term, Indonesia's debt-to-GDP ratio had increased to about 39%. That said, Jokowi’s administration succeeded in maintaining investor confidence by adhering to prudent fiscal management and retaining a generally stable macroeconomic environment. This was crucial in attracting foreign investment, especially from key partners like China. 
• Prabowo’s Approach: To support his ambitious growth targets, Prabowo plans to relax fiscal constraints by incrementally raising the country’s debt-to-GDP ratio cap, with initial reports stating that he plans to increase it to around 50%. While this would allow for increased borrowing to fund infrastructure and social welfare programs, this expansionary approach must balance debt sustainability and investor confidence. The latter he is doing by signaling continuity, such as retaining key figures like Finance Minister Sri Mulyani. Additionally, Prabowo has stated that he will consider the possibility of lowering corporate taxes to 20% from 22%, as well as maintain and enhance ties with major investors such as China and the US. 
  
   

3. Revenue Generation and Tax Reforms 

• Inherited Condition: Jokowi's government worked on increasing revenue through tax reforms and subsidy cuts, especially on fuel. While this provided some fiscal space, rising commodity prices caused subsidy expenses to rise again, complicating budget management. 
• Prabowo’s Approach: Prabowo aims to enhance revenue collection by improving the efficiency of the tax system, increasing excise duties, and raising royalties from sectors like mining. He has proposed establishing a dedicated revenue agency to streamline tax collection, addressing one of the fiscal challenges left by his predecessor, though it remains unclear whether he would move forward with the plan.  
  
   

4. Resource Downstreaming and Energy Security 

• Inherited Condition: Jokowi promoted resource nationalism, encouraging the domestic processing of raw materials, especially nickel, to build a local EV battery industry. This policy aimed to move Indonesia up the value chain but also led to tensions with trading partners over export restrictions. 
  
  Jokowi's administration also struggled with Indonesia's heavy reliance on fossil fuels, particularly coal, while making initial strides toward renewable energy adoption. The country remains one of the largest coal producers, and subsidies for fossil fuels persisted despite efforts to diversify the energy mix. Jokowi promoted biofuel usage, such as the B30 biodiesel program, as a step towards reducing fossil fuel dependency, but the transition was gradual and faced logistical and production challenges. 
   
• Prabowo’s Approach: Prabowo plans to continue and expand upon these industrial policies, particularly in the nickel sector. He seeks to develop downstream industries that add value to raw materials, creating jobs and reducing reliance on commodity exports. This will continue to cause strain in a number of international trade relationships. 
  
  As for Indonesia's biofuel program, Prabowo aims to push for a B50 biodiesel mix (50% biofuel blend). This plan involves increasing the production of palm oil-based biodiesel, a sector in which Indonesia is a global leader. However, achieving this will require addressing supply chain and sustainability issues in palm oil production, as well as ensuring the infrastructure can support the wider use of biofuels. 
  
   

5. Economic Inclusivity and Food Security 

• Inherited Condition: Jokowi's administration faced challenges in addressing income inequality, poverty, and food security across Indonesia. Although various welfare programs were initiated, issues like malnutrition and poverty persisted, especially in rural areas. Efforts were made to streamline subsidies and support vulnerable populations, but rising living costs and economic disparities remained key issues. 
  
  In achieving food security, Jokowi's administration initiated the "food estate" program – large-scale agricultural zones across Indonesia. These estates aimed to increase the domestic production of staples like rice, maize, and cassava, reducing dependency on imports. However, the program faced numerous challenges, including logistical issues, environmental concerns, and inefficiencies in land use. 

• Prabowo’s Approach: To tackle these challenges, Prabowo plans to implement a free nutritious meals program for school children and pregnant women starting from January 2025. This initiative aims to directly address food insecurity and malnutrition, improving health outcomes for vulnerable groups while supporting local agriculture. By investing in such social welfare programs, Prabowo hopes to boost economic inclusivity and reduce inequality, building on the welfare infrastructure established during Jokowi's tenure. 
  
  As for the food estate initiative, Prabowo plans expand it further, having identified a three-million hectare area (roughly the size of Belgium) designated for the cultivation of rice, corn, and soybeans in Papua. He also plans to focus on improving agricultural productivity and sustainability by modernizing farming techniques, providing better infrastructure, and ensuring efficient land use. 
  
  
  Altogether, Prabowo inherits a mixed economic legacy of robust infrastructure development but heightened fiscal pressure from Jokowi. His plans to expand borrowing, improve revenue systems, and push industrial policies build on this foundation. However, the success of his strategies will depend on balancing aggressive growth ambitions with maintaining fiscal discipline and investor trust.