Indonesia's economic ambitions falter under Prabowo's interventionist policies

Indonesia, once hailed as a rising star among emerging economies with projections of becoming the world's fourth-largest economy by 2050, is now facing significant headwinds. Critics contend that the policies enacted by President Prabowo Subianto, who took office in October 2024, are undermining this potential through increased state intervention and authoritarian measures.

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The main risk is that investors begin to perceive Indonesia - which has the largest nickel reserves on the planet - as an increasingly unpredictable and interventionist country.

A recent controversial decision involves the centralization of exports for strategic raw materials such as palm oil, coal, and ferroalloys through a new state agency. This move, which began this week, aligns with what analysts describe as Prabowo's pattern of increased state control over businesses. Qi Hang Tay, an analyst at the Economist Intelligence Unit, warns that investors may perceive Indonesia as increasingly unpredictable, potentially deterring crucial private capital inflow.

This shift raises concerns among experts and human rights organizations about the country's institutional and economic direction. They point to the "militarization of institutions" and the establishment of the Danantara Indonesia sovereign wealth fund, overseen by the president, which has taken control of numerous state-owned enterprises. The new agency, Danantara Sumberdaya (DSI), will act as an intermediary and buyer for these raw material exports, aiming to ensure accurate valuation and combat practices like under-invoicing.

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We want to know exactly how much of our wealth is being sold.

While President Prabowo stated in May that the goal is to precisely track the nation's wealth sales and prevent price manipulation, the private sector expresses caution. Mansuetus Darto, director of the Indonesian Palm Oil Producers Association (POPSI), advised the government to proceed carefully, considering the implications for the industry. The overall sentiment among critics is that these policies could hinder job creation, productivity growth, and the expansion of the middle class, casting doubt on Indonesia's ambitious economic goals.

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The government should be cautious and also consider the implications.