Prabowo faces investors’ uprising over Indonesia’s economic channels
For months, President Prabobo Suboant’s move has sparked uncertainty in the market as it slashes off Indonesia’s long-established economic guardrail. This week’s sudden defeat suggests that investors are losing patience.
The former general has been causing unease with his populist spending measures and plans to dilute central bank independence and aggressive policies against foreign companies like Apple Inc.EnlargeThe role of the military also sparks protests from angry students in Jakarta.
The turning point came on Tuesday. On Tuesday, rumors resigned that Finance Minister Sri Muryani Indrawati, who has been strictly restraining his spending during his 14 years of service, would resign. The stock market fell the most in the three years of the day, with government officials and Indrawati coming out one by one to dispel speculation. The Bank of Indonesia has been forced to step in to protect the rupiah, Asia’s worst currency this year.
The rumours “had a new fear of reformists being wiped out and were a catalyst for exposing all the economic issues facing the country,” said John Foo, founder of Valverde Investment Partners Pte.
Although there has been some reprieve in the market since then, investors remain rattled by Prabowo’s policy moves, and Southeast Asia’s biggest economy has also tackled the threat of US President Donald Trump’s tariffs, suppressing China’s demand for raw materials.
The top of the mind for investors is their financial outlook. It was once cited by Morgan Stanley“Fragile 5”In a market that is prone to wild fluctuations due to foreign sentiment, Indonesia has steadily improved its trustworthiness with investors thanks to careful economic management that raised its credit rating from junk status.
Prabowo, 73, is now threatening to overturn that trajectory. His policy measures since taking office in October could bring the fiscal deficit closer to a legal limit of 3% of gross domestic product. He expanded his cabinets from about 60 to over 100 under his predecessor, Djoko Widodo. After the public protest, he retreated by hiking value-added tax rates.
He implemented a Free lunch program Students (signature campaign pledges) cost $30 billion a year. This is equivalent to 14% of Indonesia. Overall budget for 2024. To pay for this, he significantly reduced spending in other areas, such as infrastructure projects and travel.
“People in the market are concerned about the production of economic policies,” said Achimad Scalson, Indonesia’s lead analyst at Control Risk. “They have seen that a lot of policies don’t just say it, they don’t have a healthy economic foundation.”
Prabowo’s office did not immediately respond to requests for comment.
“Walking Call”
governmentdelayIt releases monthly budget data for January, leading investors to question the government’s financial position. The numbers were finally released last week,Surprising deficitBecause both revenue and spending fell sharply.
Prabowo’s biggest pledge, increasing economic growth to 8%, is no good either. Analysts say the goal isUnrealisticThis year, the market consensus is close to 5% growth.
Aditya Perdana, a political lecturer at the University of Indonesia, said, “The President is focused on fulfilling his populist campaign promises that require efficient execution,” explaining the effort as uneven and selective. “From a political perspective, this should serve as a wake-up call to adjust the course before the government loses further credibility.”
Creating PrabowoSovereign wealth fundDanantara is another source of concern. The fund has a drastic mission to control the country’s state-owned enterprises and invest in the entire industry. The government will lead $20 billion from existing budgets to the fund and operate with business savvy.AlliesReport directly to the President.
Authoritarian past
Prabowo’s actions often manifest in many ways, and appear in conflict with the very institutions introduced to win the faith of voters and investors after the fall of former dictator Suharto, who ruled Indonesia for 30 years until his expulsion amid street protests in the late 1990s.
His allies in Parliament, for example, moved quickly to pass controversial laws despite public criticism that the change was reminiscent of the authoritarian past of Southeast Asian nations. Local reports show that thousands of students took them to the capital’s streets on Thursday, throwing stones, spraying walls, spraying walls and burning tires.
The market response to legal texts “shows a careful approach from investors reflecting concerns about the potential changes in Indonesia’s democratic trajectory and governance structure.
“We believe this can provide some uncertainty to the market,” Citigroup analyst Ferrywon said of the protest.
Lawmakers also talk about the possibility of expanding the central bank’s duties. That renewed investors’ concerns about the independence of the Bank of Indonesia after the previous draft of the Financial Sector Omnibus Act added job creation to central bank targets. Governor Perry Waljiyo said this week that the changes to the rules will only be “emphasised,” but will not fundamentally change the current goals.
Certainly, this does not appear to pose an immediate threat to Prabowo, who enjoys an overwhelming parliamentary majority, but the country’s only opposition party is still seen as lending legislative support on issues like military law. The state’s revenues are also poised to see the turnaround in March, IndrawatiI felt relievedOn Tuesday, the government pledged to maintain its fiscal deficit within the fiscal cap at 2.5% of GDP this year.
It remains to be seen whether these guarantees are sufficient to alleviate investor concerns.
“This is a clear warning and we need to prevent the situation from getting worse,” said Perdana, University of Indonesia. “While some corrective actions have been put in place, issues that are under-implemented are still important.”
This story was originally introduced Fortune.com