Prabowo's Efficiency Drive Sparks Local Unrest in Indonesia

A riot in Central Java has signaled potential trouble for Indonesian regions as President Prabowo Subianto's push to finance flagship programs comes at the expense of local government budgets. The riot was sparked by a protest against local property tax hikes, highlighting concerns about the impact of the government's efficiency drive on regional finances. The situation could lead to further unrest across the country.

Indonesia's President Prabowo Subianto has outlined his 2026 budget proposal, which aims to boost economic growth and improve welfare. However, his push to finance flagship programs has sparked concerns about the impact on local government budgets, as evidenced by recent unrest in Central Java.

In his speech to parliament, Prabowo announced a budget deficit of 2.48% of GDP, with plans to eliminate it by 2027 or 2028. He proposed spending IDR 335 trillion (approximately USD 20.74 billion) on a free meals program for 82.9 million students, children, and pregnant women. Additionally, he allocated IDR 171 trillion for the program in 2025, which has already reached about 20 million recipients [1].

Prabowo also promised budgetary support to decarbonise Indonesia's electricity, aiming for 100% renewable power sources within the next decade. This initiative aligns with his goal of achieving food and energy self-sufficiency. Furthermore, he emphasized the need to modernise Indonesia's military hardware and utilise rare earths deposits for modern defence [1].

However, the budget cuts have led to local governments boosting their own revenue, as seen in Pati, Central Java. The Pati Regent, Sudewo, raised the Land and Building Tax rates by up to 250% to compensate for reduced regional transfers from the central government. This decision sparked protests and unrest, highlighting the potential for social instability if fiscal pressures continue [3].

Economist Syafruddin Karimi from Andalas University noted that the central government's policy has pressured local governments to increase taxes, leading to public resistance and demonstrations. He urged the government to manage fiscal relations more fairly and consider policies that burden the public [3].

The unrest in Pati reflects broader concerns about the impact of the government's efficiency drive on regional finances. The situation could lead to further unrest across the country, as local governments struggle to balance their budgets and maintain public services.

As investors and financial professionals, it is crucial to monitor the evolving situation in Indonesia. The government's push to finance flagship programs, while ambitious, may have unintended consequences for local government budgets and public trust. It is essential to stay informed about the developments and potential risks to make informed investment decisions.

References:

[1] https://www.yahoo.com/news/articles/indonesias-2026-budget-designed-country-085913264.html
[2] https://voi.id/fr/amp/505840
[3] https://en.tempo.co/read/2039106/economist-tensions-in-pati-stem-from-central-government-fiscal-policy