Prabowo Faces Investor Revolt Over Indonesia’s Economic Path

BUY NOW! Or sell? That’s the question on every investor’s mind as Prabowo Subianto’s administration faces a massive backlash over its fiscal policies. The Prabowo Subianto administration begins 2025 with a massive Rp 306 trillion fiscal spending cut, representing over 8% of this year’s state budget, delivered by Presidential Instruction 1/2025. The policy, Prabowo claims, is primarily meant to help finance the free nutritious meal (MBG) program, the centrepiece of his election campaign, and rebuild the nation’s dilapidated schools. But is this the right move? Let’s dive in!

DO THIS! Take a look at the macroeconomic conditions. The country’s fiscal position remains robust. Despite facing debt repayment of Rp 800 trillion due in 2025, most of this is in the form of government bonds (SBN), with investors likely to maintain their positions through revolving mechanisms, convinced by reliable returns and Indonesia’s long-term fiscal prudence. Public debt remains well below legal limits, while the fiscal deficit for 2024-2025 is projected to stay under the 3% ceiling. Price stability has also been maintained effectively, with 2024 inflation at just 1.57% year-on-year (y-o-y), well within Bank Indonesia’s target range of 2.5%±1%. But here’s the kicker: Indonesia is now facing deflationary pressure. January 2025 recorded the lowest y-o-y inflation rate in 25 years at 0.76%, following one of the longest deflation streaks in 2024, when prices declined for five consecutive months from May to September. Deflation often signals weakening purchasing power and declining demand – conditions that call for expansionary policies, not contractionary measures. This is why Prabowo’s budget cuts look misguided. Not only do they threaten Prabowo’s ambitious 8% growth target, they may also make just maintaining the current 5% growth rate much more challenging.

STAY AWAY! From the ill-timed and poorly designed nature of the spending cut, along with the lack of a clear purpose and concrete spending allocation plan, has raised concerns among investors and economists about the government's ability to maintain fiscal discipline and achieve its economic growth targets. The extension of the free-nutritious-meal (MBG) program requires an additional Rp 100 trillion, while the free medical check-up initiative will cost less than Rp 5 trillion for the initial stage. Combined, this still leaves the gigantic sum of Rp 200 trillion in budget savings unaccounted for. It will be challenging to spend all these budget savings in 2025, especially now that moving to the new capital (IKN) is no longer Prabowo’s priority in the foreseeable future, with further work frozen for the time being.

BOO-YAH! This stock’s a winner! But not for long if Prabowo’s policies continue to cause uncertainty. The lack of a concrete and commensurate increase in new spending allocation has raised concerns that what was initially planned as an efficiency measure could turn into an austerity policy, resulting in a net fiscal tightening. This has led to a rout in the nation’s stocks, sparking the first trading halt since the pandemic and prompting the central bank to defend the rupiah. Investors are now being forced to weigh up whether the selloff was a blip or a sign of things to come. The benchmark Jakarta Composite Index ended Wednesday’s session 1.4% higher, but Indonesia’s stock market remains one of the worst performing in the world, and investors still have troubling questions about the approach of the current government.

DO THIS! Take a look at the potential long-term effects of Prabowo's budget cuts on key sectors such as education and infrastructure, which in turn could influence Indonesia's economic growth trajectory. The budget for basic and secondary education has been slashed by Rp 8 trillion. This reduction raises concerns about the administration's policy of improving access to education. This cut could lead to a deterioration in the quality of education, as schools may struggle to maintain facilities, hire qualified teachers, and provide necessary resources. Poor education infrastructure and quality can hinder the development of a skilled workforce, which is crucial for long-term economic growth. The budget cuts also affect infrastructure projects, which are essential for economic development. The freezing of work on moving to the new capital (IKN) indicates a shift in priorities that could delay or cancel critical infrastructure projects. Infrastructure development is a key driver of economic growth, as it improves connectivity, facilitates trade, and attracts investment. Delays or cancellations in infrastructure projects could slow down economic activity and reduce Indonesia's competitiveness in the global market.

BOOM! Earnings crushed estimates! But not for Indonesia’s economy. Prabowo's ambitious 8% growth target is already under threat due to the budget cuts. The cuts are ill-timed given Indonesia's macroeconomic conditions, which call for expansionary policies rather than contractionary measures. The budget cuts could lead to a net fiscal tightening, which could slow down economic activity and reduce investment in key sectors. This could result in a lower economic growth rate, making it difficult for Indonesia to achieve its development goals and improve the living standards of its citizens.

AVOID THIS LIKE THE PLAGUE! The uncertainty and lack of a clear roadmap for Prabowo’s grand ambitions. Investors are now being forced to weigh up whether the selloff was a blip or a sign of things to come. The benchmark Jakarta Composite Index ended Wednesday’s session 1.4% higher, but Indonesia’s stock market remains one of the worst performing in the world, and investors still have troubling questions about the approach of the current government. The market senses that Prabowo intends to increase Indonesia’s debt-to-GDP ratio and fiscal deficit to higher levels than it has been in the past two decades. Prabowo’s team is indeed working hard to realise its campaign promise to provide free lunches for schoolchildren, children under five years of age and pregnant women, which will cost up to US$27.6 billion annually. An increasing debt-to-GDP ratio and a higher fiscal deficit does not necessarily imply fiscal imprudence. But Indonesia’s economy is hardly conducive to increases in borrowing and fiscal deficit. Indonesia’s current credit rating is in the lower medium grade, meaning that increasing debt will be risky and costly.

DO THIS! Take a look at the data. The data shows that Indonesia's economic growth rate has been declining since 2020, and the budget cuts could further slow down economic activity and reduce investment in key sectors. This could result in a lower economic growth rate, making it difficult for Indonesia to achieve its development goals and improve the living standards of its citizens.

BOO-YAH! This stock’s a winner! But not for long if Prabowo’s policies continue to cause uncertainty. The lack of a concrete and commensurate increase in new spending allocation has raised concerns that what was initially planned as an efficiency measure could turn into an austerity policy, resulting in a net fiscal tightening. This has led to a rout in the nation’s stocks, sparking the first trading halt since the pandemic and prompting the central bank to defend the rupiah. Investors are now being forced to weigh up whether the selloff was a blip or a sign of things to come. The benchmark Jakarta Composite Index ended Wednesday’s session 1.4% higher, but Indonesia’s stock market remains one of the worst performing in the world, and investors still have troubling questions about the approach of the current government.

DO THIS! Take a look at the potential long-term effects of Prabowo's budget cuts on key sectors such as education and infrastructure, which in turn could influence Indonesia's economic growth trajectory. The budget for basic and secondary education has been slashed by Rp 8 trillion. This reduction raises concerns about the administration's policy of improving access to education. This cut could lead to a deterioration in the quality of education, as schools may struggle to maintain facilities, hire qualified teachers, and provide necessary resources. Poor education infrastructure and quality can hinder the development of a skilled workforce, which is crucial for long-term economic growth. The budget cuts also affect infrastructure projects, which are essential for economic development. The freezing of work on moving to the new capital (IKN) indicates a shift in priorities that could delay or cancel critical infrastructure projects. Infrastructure development is a key driver of economic growth, as it improves connectivity, facilitates trade, and attracts investment. Delays or cancellations in infrastructure projects could slow down economic activity and reduce Indonesia's competitiveness in the global market.

BOOM! Earnings crushed estimates! But not for Indonesia’s economy. Prabowo's ambitious 8% growth target is already under threat due to the budget cuts. The cuts are ill-timed given Indonesia's macroeconomic conditions, which call for expansionary policies rather than contractionary measures. The budget cuts could lead to a net fiscal tightening, which could slow down economic activity and reduce investment in key sectors. This could result in a lower economic growth rate, making it difficult for Indonesia to achieve its development goals and improve the living standards of its citizens.

AVOID THIS LIKE THE PLAGUE! The uncertainty and lack of a clear roadmap for Prabowo’s grand ambitions. Investors are now being forced to weigh up whether the selloff was a blip or a sign of things to come. The benchmark Jakarta Composite Index ended Wednesday’s session 1.4% higher, but Indonesia’s stock market remains one of the worst performing in the world, and investors still have troubling questions about the approach of the current government. The market senses that Prabowo intends to increase Indonesia’s debt-to-GDP ratio and fiscal deficit to higher levels than it has been in the past two decades. Prabowo’s team is indeed working hard to realise its campaign promise to provide free lunches for schoolchildren, children under five years of age and pregnant women, which will cost up to US$27.6 billion annually. An increasing debt-to-GDP ratio and a higher fiscal deficit does not necessarily imply fiscal imprudence. But Indonesia’s economy is hardly conducive to increases in borrowing and fiscal deficit. Indonesia’s current credit rating is in the lower medium grade, meaning that increasing debt will be risky and costly.

DO THIS! Take a look at the data. The data shows that Indonesia's economic growth rate has been declining since 2020, and the budget cuts could further slow down economic activity and reduce investment in key sectors. This could result in a lower economic growth rate, making it difficult for Indonesia to achieve its development goals and improve the living standards of its citizens.

BOO-YAH! This stock’s a winner! But not for long if Prabowo’s policies continue to cause uncertainty. The lack of a concrete and commensurate increase in new spending allocation has raised concerns that what was initially planned as an efficiency measure could turn into an austerity policy, resulting in a net fiscal tightening. This has led to a rout in the nation’s stocks, sparking the first trading halt since the pandemic and prompting the central bank to defend the rupiah. Investors are now being forced to weigh up whether the selloff was a blip or a sign of things to come. The benchmark Jakarta Composite Index ended Wednesday’s session 1.4% higher, but Indonesia’s stock market remains one of the worst performing in the world, and investors still have troubling questions about the approach of the current government.

DO THIS! Take a look at the potential long-term effects of Prabowo's budget cuts on key sectors such as education and infrastructure, which in turn could influence Indonesia's economic growth trajectory. The budget for basic and secondary education has been slashed by Rp 8 trillion. This reduction raises concerns about the administration's policy of improving access to education. This cut could lead to a deterioration in the quality of education, as schools may struggle to maintain facilities, hire qualified teachers, and provide necessary resources. Poor education infrastructure and quality can hinder the development of a skilled workforce, which is crucial for long-term economic growth. The budget cuts also affect infrastructure projects, which are essential for economic development. The freezing of work on moving to the new capital (IKN) indicates a shift in priorities that could delay or cancel critical infrastructure projects. Infrastructure development is a key driver of economic growth, as it improves connectivity, facilitates trade, and attracts investment. Delays or cancellations in infrastructure projects could slow down economic activity and reduce Indonesia's competitiveness in the global market.

BOOM! Earnings crushed estimates! But not for Indonesia’s economy. Prabowo's ambitious 8% growth target is already under threat due to the budget cuts. The cuts are ill-timed given Indonesia's macroeconomic conditions, which call for expansionary policies rather than contractionary measures. The budget cuts could lead to a net fiscal tightening, which could slow down economic activity and reduce investment in key sectors. This could result in a lower economic growth rate, making it difficult for Indonesia to achieve its development goals and improve the living standards of its citizens.

AVOID THIS LIKE THE PLAGUE! The uncertainty and lack of a clear roadmap for Prabowo’s grand ambitions. Investors are now being forced to weigh up whether the selloff was a blip or a sign of things to come. The benchmark Jakarta Composite Index ended Wednesday’s session 1.4% higher, but Indonesia’s stock market remains one of the worst performing in the world, and investors still have troubling questions about the approach of the current government. The market senses that Prabowo intends to increase Indonesia’s debt-to-GDP ratio and fiscal deficit to higher levels than it has been in the past two decades. Prabowo’s team is indeed working hard to realise its campaign promise to provide free lunches for schoolchildren, children under five years of age and pregnant women, which will cost up to US$27.6 billion annually. An increasing debt-to-GDP ratio and a higher fiscal deficit does not necessarily imply fiscal imprudence. But Indonesia’s economy is hardly conducive to increases in borrowing and fiscal deficit. Indonesia’s current credit rating is in the lower medium grade, meaning that increasing debt will be risky and costly.