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Amy Chew

Indonesia’s President-elect Prabowo Subianto will face a challenging economic landscape when he takes office in October, marked by slowing growth and heightened geopolitical uncertainties.
Indonesia Chamber of Commerce and Industry (Kadin) and economists say weak domestic consumption, high interest rates, falling commodity prices, geopolitical tensions, rising debts in state-own enterprises and China’s struggling economy are among the many hurdles awaiting Prabowo.
“Kadin Indonesia is closely monitoring global external challenges filled with uncertainty due to escalating global geopolitical issues and the global macroeconomic state, driving a high-interest rate era, particularly in the United States,” Kadin chairman Arsjad Rasjid told This Week In Asia.
“We see that global geopolitical escalation [creates] challenges for global commodity prices…,” said Arsjad.
Indonesia is a major producer of commodities such as coal, palm oil and nickel.
Despite the geopolitical challenges, Arsjad is optimistic Indonesia’s economic growth will be “solid.”
Kadin projected economic growth for all of 2024 will be around 4.9 to 5.1 per cent, driven by domestic consumption and investments. This is slightly lower than Finance Minister Sri Mulyani Indrawati’s forecast of a 5 to 5.2 per cent growth for the year.

On Friday, Reuters quoted Sri Mulyani as saying that financial authorities discussed geopolitical developments to anticipate risks that could affect Indonesia’s economy, including tensions in the Middle East, the war in Ukraine and elections in other countries.
Her comments come following the assassination of Hamas leader Ismail Haniyeh on Wednesday, which saw oil prices rise nearly 3 per cent before levelling off the next day.
Sri Mulyani expects the country’s second quarter economic growth to slow to 5 per cent, slightly down from 5.11 per cent recorded in the first quarter. The data will be released on Monday.
Siwage Dharma Negara, a senior fellow at the Singapore-based ISEAS-Yusof Ishak Institute, said the Indonesia’s economic outlook was “less optimistic” than what the government had reported.
“Consumption has been weakening due to inflation and currency depreciation, and investment has been stagnant due to weak external factors and uncertainty in domestic politics,” said Negara.
China, which is Indonesia’s largest trade partner, continues to struggle with its economy. As such, Negara expects Indonesian exports to China to decline.
“At the same time, we expect investment from China will also decline,” he noted.
“Exports also do not look very good, given the slower global economy,” said Negara, adding that the government seems to be unable to avoid rising budget deficit and higher debt level.
Indonesia has laws mandating that the annual budget deficit cannot exceed 3 per cent of GDP and set a maximum debt-to-GDP ratio of 60 per cent of GDP.
Manggi Habir, an independent economist and former fellow at the Regional Economic Studies Programme of the ISEAS – Yusof Ishak Institute, said Indonesia’s debt-to-GDP ratio has risen to some 39 per cent.
“It’s still manageable, but [Indonesia] needs to be cautious about going up further given global market uncertainty,” he added.
Manggi said investments are currently in a holding pattern until there is clarity over Prabowo’s cabinet formation, which will come in during the last quarter of 2024.
He described the country’s economic outlook as “mixed, but cautiously more good than bad.”

“Interest rates have peaked and should be trending downward next year, which is good for consumption and investment,” said Manggi.
A challenge for Prabowo is the country’s rupiah, which has fallen by almost 6 per cent against the US dollar since the end of December 2023.
It traded at 16,200 rupiah to the US dollar on Friday, a level last seen during the 1998 Asian financial crisis.
However, unlike the 1998 Asian Financial Crisis, Indonesia’s current financial indicators are healthy and stable. “So, a crisis like 1998 is unlikely to happen,” Negara said.
Kadin’s Arsjad Rajid said the rupiah’s depreciation has increased the burden of national businesses as prices of raw material, logistics and transport have spiked, potentially disrupting supply chains. It also resulted in higher prices for consumer goods.
“We have urged businesses to continue adjusting their operations for efficiency … foreign exchange hedging … debt restructuring or converting dollar debts into rupiah … delay expansion … and seek alternative [imported] raw materials,” said Arsjad.
On the positive side, Arsjad expects the depreciation of the rupiah to benefit exporters in Indonesia’s key commodities, including palm oil, coal, and nickel. “We see that the exchange rate influence boosts the competitiveness of commodities, driving foreign exchange inflows into Indonesia …” he added.
Arsjad said Kadin will come out with a white paper on recommendations for strategic development for the new government for the period from 2025 to 2029 this October.
Prabowo will also inherit heavily indebted state-owned enterprises (SOEs) when he takes office, thanks to the various government infrastructure projects undertaken during President Joko Widodo’s 10 years in office.


“The SOEs were tasked with building several big infrastructure projects, which require significant capital costs and long payback periods,” said Negara.
Among the large infrastructure projects is the construction of the new capital, Nusantara, which is projected to cost US$32 billion.
Negara said Nusantara has drained fiscal resources as the construction of various infrastructure projects at the new capital, such as roads, airports and power plants, all require significant state resources.
“Growing SOE’s debt will affect their financial performance and eventually add extra pressure on the government’s budget. Given the tight fiscal space, the government needs to find a solution to save some highly indebted SOEs, including through privatisation,” said Negara.


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Indonesia’s Defence Minister and President-elect Prabowo Subianto speaking at the Shangri-La Dialogue in Singapore on June 1. Photo: Reuters

Indonesia’s Finance Minister Sri Mulyani Indrawati speaks during a press conference at the G20 Finance Ministers and Central Bank Governors Meeting in Bali in July 2022. Photo: AP

Construction workers at a construction site in the country’s future capital city of Nusantara in East Kalimantan province on July 29. Photo: EPA

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A worker in a protective suit pokes a metal rod to tap slag from a smelting furnace at PT Vale Indonesia’s nickel processing plant in Sorowako, South Sulawesi, Indonesia, Photo: (AP Photo/Dita Alangkara)

Workers at the Indonesia Weda Bay Industrial Park’s compound in Central Halmahera, North Maluku. Photo: AP

US President Joe Biden talking to Indonesian President Joko Widodo in Washington DC in November 2023. Photo: Reuters

President Joko Widodo (5th L) attends the inauguration ceremony of an electric vehicle battery manufacturing plant in Karawang, West Java on July 3. Photo: Xinhua

An attendee holds a bottle of nickel sulphate during the International Battery Summit in Jakarta on July 29. Photo: Bloomberg

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Indonesia’s President-elect Prabowo Subianto speaks at the Shangri-La Dialogue in Singapore in June. Photo: Reuters

The new presidential palace in Indonesia’s future capital city, Nusantara. Photo: AFP

Gibran Rakabuming Raka, the eldest son of Indonesian President Joko Widodo, was the running mate of president-elect Prabowo Subianto. Photo: Reuters

Billionaire tycoon Hashim Djojohadikusumo is the brother of Indonesia’s president-elect, Prabowo Subianto. Photo: Jonathan Wong

Will Indonesia’s desire to host the 2036 Olympics go up in flames over economics, geopolitics?

The Olympic Flame handover ceremony for the 2020 Tokyo Games. Photo: Shutterstock

Indonesian president-elect Prabowo Subianto (left) shakes hands with French President Emmanuel Macron in Paris, France, on July 24. Photo: EPA-EFE

Minister of State-Owned Enterprises Erick Thohir is leading the charge for Indonesia’s bid to host the 2036 Summer Olympics. Photo: AFP

Prabowo’s meeting with Putin underscores Indonesia’s ‘friend to all’ foreign policy

Russian President Vladimir Putin and Indonesian Defence Minister and President-elect Prabowo Subianto meet at the Kremlin in Moscow on July 31. Photo: AP

Indonesian Defence Minister and President-elect Prabowo Subianto shakes hands with Russian Deputy Prime Minister Denis Manturov during his meeting with Russian President Vladimir Putin in Moscow on July 31. Photo: AP

French President Emmanuel Macron welcomes Indonesian President-elect and Defence Minister Prabowo Subianto at the Elysee Palace in Paris on July 24. Photo: EPA-EFE

India’s Prime Minister Narendra Modi talks with Indonesia’s President Joko Widodo during the 20th Asean-India Summit in Jakarta last year. Photo: AFP

French soldiers stand in front of a French Rafale fighter aircraft at the Halim Perdanakusuma air force base in Jakarta last year. Photo: EPA-EFE

Indonesia’s Widodo delays move to new capital, amid Prabowo’s potential shift on Nusantara

Indonesia’s President Joko Widodo said his plan to move his office to the country’s new capital city has been delayed, adding doubts on the US$32 billion dollar Nusantara project’s viability. Photo: Reuters

Indonesia’s future Presidential Palace at the future Capital City of Nusantara. The new city is scheduled to begin operating as the country’s new political centre on August 17, Indonesia’s independence day. Photo: AFP

The viability of the Nusantara megaproject may hinge on president-elect Prabowo Subianto. Photo: Reuters

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Experts say the president-elect will face significant financial hurdles, including high debts, weak consumption and geopolitical risks


Experts say the president-elect will face significant financial hurdles, including high debts, weak consumption and geopolitical risks.
