Prabowo’s policies won’t fix Indonesia’s problems

Heavy spending and top-down control are unlikely to rescue Indonesia from corruption, inequality and investor doubt.

Hilman Palaon

6 October 20254 min read

Indonesia is navigating political turmoil, economic instability, and social unrest. Governance is weakening, investor confidence is fading, and inequality is worsening. Does President Prabowo Subianto have the answers to turn the tide? On current evidence, the answer is no.

In his national address on 15 August, Prabowo openly condemned the entrenched culture of corruption, coining the term “serakah-nomics” to describe an economy driven by greed rather than the national interest. His vision of “Indonesia incorporated” calls for collaborative, cross-sector growth. He encouraged public scrutiny, urging citizens: “Don’t stop criticising. Be brave in oversight and correction.”

Optimism faded quickly as deadly protests over rising economic inequality and limited opportunities erupted weeks after the speech. A major cabinet reshuffle soon followed, along with the revocation of House of Representatives policies and disciplinary actions against members. But these actions were seen more as a political ploy to regain support than a push for real reform. Many now question if the government will simply drift further into inefficiency, patronage, and a militarised centralisation of authoritarian power. Prabowo reportedly toyed with using the military to contain the protests, though ultimately demurring.

Indonesia may look like an investor’s dream – with abundant resources, a young population, and strategic geography – but potential doesn’t guarantee prosperity. Without strong governance, regulatory certainty, and credible sustainability standards, natural wealth becomes a liability. The same goes for its so-called demographic dividend: youth unemployment sits at 16%, more than half the workforce is informal, and job-ready skills are lacking. The middle class, a key driver of political stability and economic growth, is shrinking – from 21.5% in 2019 to 17.1% in 2024.

Prabowo’s signature policies are unlikely to turn things around. His economic vision is rooted in nostalgic economism, harking back to the Suharto era when state control, military involvement, and “gotong royong” (mutual cooperation) were the dominant organising principles.

Take Prabowo’s flagship Free Nutritious Meals (MBG) program targeting over 80 million recipients – including schoolchildren, pregnant women, breastfeeding mothers, and toddlers. This aims not only to tackle malnutrition and boost school attendance but also to drive regional economies by sourcing food locally and creating “kitchen jobs”. Rushed implementation has already translated into serious challenges, including food poisoning, poor targeting, weak oversight, and a lack of transparency. Yet, Prabowo is pushing forward with a plan to scale up the scheme, with the National Nutrition Agency’s budget set to double from US$10 billion in 2025 to US$20 billion next year.

Rather than tax Indonesia’s tycoons and regulate their businesses more effectively, Prabowo seems more intent on cajoling them to support his own pet projects and centrally directed economic vision.

The Koperasi Merah Putih program reflects a similar state-led attempt to boost rural economies by creating 80,000 village cooperatives, backed by a US$12 billion budget mainly through low-interest loans from state banks. While it offers a chance to empower rural communities, analysts warn of risks such as rent-seeking and misuse of funds. There are doubts whether the cooperatives will be truly bottom-up or imposed top-down, limiting local control, weakening village autonomy. A lack of skilled management, infrastructure, and commitment to transparency in villages also raises questions about the program’s long-term viability.

Along a similar vein, the Food Estate program aims to boost food security by expanding large-scale agriculture to increase staple crop production, reduce import reliance, and ensure self-sufficiency. Yet there are substantial doubts over both viability and potential impacts. Nearly 80% of farmers are over 40 years of age, most working as smallholders with limited access to technology. Younger Indonesians are steering clear of farming in favour of better-paying urban jobs. Meanwhile, land use, environmental impact, and local execution remain contested.

Outside agriculture, Prabowo is also pushing forward with state-led policies with substantial doubts hanging over them.

Indonesia's downstreaming policies raise serious concerns over environmental harm and worker safety. While capital-intensive investments in mineral processing and related industries have had some success, they have made little lasting impact. Despite rising output, the anticipated benefits to local economies – such as job creation and technology transfer – remain minimal.

Prabowo’s new Danantara sovereign wealth fund plans to issue US$3.1 billion in Patriot Bonds to fund strategic projects. The plan is to “offer” these privately to major conglomerates at a 2% fixed coupon – well below the 5% market rate. Rather than tax Indonesia’s tycoons and regulate their businesses more effectively, Prabowo seems more intent on cajoling them to support his own pet projects and centrally directed economic vision.

One area where more credit is due is Indonesia’s foreign economic policies. Prabowo is actively diversifying. Indonesia has joined BRICS, secured free trade agreements with the European Union and Canada, and negotiated lower Trump tariffs and, potentially, exemptions for important exports. The country is also pursuing membership of the Organisation for Economic Cooperation and Development and pushing for entry to the Comprehensive and Progressive Trans-Pacific Partnership, though these have been in the works for some time. In theory, these policies will better integrate Indonesia into global value chains, attract investment, and generate more and better jobs.

Achieving greater global integration, however, also requires domestic coherence. Without regulatory certainty, infrastructure reform, and institutional integrity, the promised gains will remain elusive. Trade will be crucial to achieving the job creation Indonesia needs. But Indonesia cannot trade its way out of domestic dysfunction.

About the author

Hilman Palaon

Dr Hilman Palaon is a Research Fellow at the Lowy Institute’s Indo-Pacific Development Centre. His work focuses on digital economy issues in the Indo-Pacific region, including financial inclusion, economic empowerment, and technology innovation.

Topics

Indonesia