February 28, 2025
JAKARTA – Despite little chance of lowering benchmark interest rates amid a strengthening United States dollar and highs cost of bond issuance, the Indonesian government is pushing for growth while relying on budget cuts to finance key programs like the free nutritious meal program and the new sovereign wealth fund, Danantara.
However, economists argue that President Prabowo Subianto’s economic policies in his first 100 days have been marked by “confusion” and “uncertainty”, creating negative sentiment that is partly reflected in the stock market’s decline and the rupiah’s weakening.
Former finance minister Chatib Basri noted that Bank Indonesia (BI) had little room to lower its benchmark interest rate to spur economic growth unless the US Federal Reserve did the same, which was unlikely given inflationary US economic policies, such as import tariff hikes.
The seasoned economist, who also sits on the newly revived National Economic Council (DEN), pointed out that expanding fiscal policy was equally challenging due to high market interest rates for government bonds and the need to manage an already sizable budget deficit.
These limitations left structural reform as the only viable path to achieving President Prabowo’s ambitious target of 8 percent GDP growth by 2029, according to Chatib.
“We need to address the issue of regulatory certainty and remove bureaucratic hurdles. The government is doing it right now,” Chatib said during his opening remarks at The Jakarta Post’s first Privé Series event on Thursday.
One area of potential reform was tax administration, he suggested, noting that many businesses deliberately kept their revenue below Rp 4.8 billion (US$291,842) to qualify for the 0.5 percent tax rate.
“Another option is to lower the Rp 4.8 billion threshold, but this is not going to be popular, as some people will go against this,” he added.
Chatib expressed support for Prabowo’s budget cuts but proposed a targeted approach based on audits to identify inefficient projects.
“Take Kertajati Airport, for example. We could ask whether it’s truly effective. I’m not so sure. There are many projects like this that the government needs to review,” he said.
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Yose Rizal Damuri, executive director of the Centre for Strategic and International Studies (CSIS), echoed the need for government efficiency through spending cuts but pointed out that there were no clear criteria for determining which parts of the budget should be trimmed.
At the same time, he noted that the government’s expanded bureaucracy with new ministries and programs added to fiscal pressure.
“This paradox creates more confusion, both within the government and across the economy. It also makes it harder for the market to respond. This kind of confusion would undermine all targets of the current administration,” Yose said during the same event.
He criticized what he sees as a lack of structured decision-making, citing as an example that the 2025–2029 National Medium-Term Development Plan (RPJMN) took four months to publish instead of the typical two months.
According to Yose, part of the problem is blurred lines of authority between politicians and technocrats, whose roles were traditionally more distinct.
“We’ve seen several instances where [the legislature] has had more sway over economic policy. Meanwhile, the technocratic side itself has yet to develop [a stronger influence],” he observed.
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Satria Sambijantoro, head of equity research at local brokerage Bahana Sekuritas, highlighted the underperformance of the local stock market when compared with other emerging markets.
“Do you know how Indonesia’s stock market performed last year? It was down 13 percent, while our peers were up around 18 percent. Since October, Bank Mandiri’s share price has plunged 40 percent. Even the biggest blue chip stocks are getting hammered,” he said.
The pessimism was justified, he added, as local companies showed signs of slowdown. The banking sector, which once delivered annual net profit growth of up to 20 percent, was projected to grow just 6 percent this year.
The rupiah, too, remained weak compared to other currencies of the region, such as the Chinese yuan, Japanese yen and Malaysian ringgit over the past two weeks.
Still, Satria acknowledged that President Prabowo had only been in office for about four months and, like any leader, was going through a “learning curve” in managing economic challenges.
“But from an ambitious standpoint, analysts and investors are looking at the hard numbers,” he noted.
He seconded an earlier statement from Chatib’s keynote speech, in which the former finance minister had remarked with reference to Trump’s policies that every president would become “a normal president” after one year in their post.
“You can say anything during a campaign, but once you’re in power, then you become a normal president. We’ll see [how it plays out],” Chatib remarked.