Inside Indonesian President Prabowo Subianto’s administration, officials are doubling down on his contentious growth and spending policies, despite recent moves from global financial agencies that shook markets and prompted outlook downgrades.
Confidence in Indonesia, a $1.4 trillion G20 economy and critical global commodities supplier, has waned in recent months as investors have grown wary about Prabowo’s big spending plans on social initiatives like a $20 billion free meals programme and efforts to stimulate rural economies across the archipelago.
A warning late last month from index provider MSCI swept $120 billion away from Indonesian equities and unleashed a wave of notes and comments from international banks, brokers and other institutions that had been quietly worried for some time. Days later, Moody’s cut its bond-rating outlook for Indonesia’s government and companies to negative.
While the government is moving to address stock ownership and market-transparency concerns, three sources familiar with internal discussions said the Prabowo administration has no intention of backing down on its broader promises, like the free meals plan and a pledge to lift growth to 8% from around 5%, where it has hovered for years.
“We are at a point of no return as those have become government programmes,” one source said, speaking on the condition of anonymity as they were not authorised to speak to the media, when asked if the government will change its fiscal strategy in the wake of Moody’s and MSCI’s concerns.
Hard Line
Investors worry that fiscal deficit control, which has underpinned investor confidence in the country since the Asian financial crisis of the late 1990s, is no longer a top priority
for Prabowo, a former military general who won the 2024 election based on promises of government largesse.
The fiscal deficit for 2025, at 2.92%, was the highest in more than two decades excluding the COVID-19 pandemic years.
“Greater focus on using public spending to drive growth poses fiscal risks, particularly given Indonesia’s weak revenue base,” Moody’s said in its statement when it cut Indonesia’s outlook to negative from stable last week.
Responding to those concerns on Monday, Prabowo spokesperson Prasetyo Hadi said the government was confident about its fiscal management and the deficit was still below the mandated 3% limit.
“We will boost government spending as much as possible at the beginning of the year,” he said.
Internal messaging, however, suggests the 3% limit is less important than achieving the administration’s growth goals.
A second source said that, while the government values the maintenance of deficit limits, it could look to raise revenues or reduce spending in other areas rather than cut back on
programmes it believes are key to growth. The government, the source said, was confident and global institutions’ “misplaced” nervousness would not dictate policy.
The current economic expansion, while steady, has not been sufficient in catering to the growing employment needs of the world’s fourth most populous country, the source added. Last year, Prabowo fired long-time Finance Minister Sri Mulyani Indrawati – known for enforcing fiscal discipline across multiple presidencies – and brought in pro-growth economist Purbaya Yudhi Sadewa.
A third source also said there was little chance that spending would be cut as it would affect growth targets.
