Prabowo’s Policy Landscape and Investment Outlook

By Jesvin Kaur

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Prabowo Subianto Djojohadikusumo, President of Indonesia

President Prabowo Subianto, who took office in October 2024, has initiated a sweeping reorientation of Indonesia’s economic strategy. His early months in power have been marked by ambitious reforms, state asset consolidation, and aggressive social spending —moves that have garnered both international attention and domestic controversy.

While these measures underscore the administration’s commitment to national self-sufficiency and economic expansion, they also present a complex and rapidly shifting environment for foreign investors.

We provide an overview of the key developments since Prabowo’s inauguration and evaluates the impact on investor sentiment and the broader economic outlook.

Recent Measures by Prabowo’s Government

1. Establishment of the Danantara Sovereign Wealth Fund

In February 2025, President Prabowo launched the Daya Anagata Nusantara Investment Management Agency, better known as Danantara, a new sovereign wealth fund tasked with managing and consolidating the assets of Indonesia’s state-owned enterprises (SOEs). The fund began with $20 billion in capital and aims to eventually oversee assets exceeding $900 billion, including shares in leading state banks such as Bank Mandiri, Bank Negara Indonesia (BNI), and Bank Rakyat Indonesia (BRI).

Danantara reports directly to the president, circumventing traditional oversight by the Ministry of Finance and the Ministry of SOEs. This consolidation is seen as a mechanism to attract large-scale foreign investment and streamline Indonesia’s state-led development strategy. Funding for the initiative is expected to come from a mix of budget cuts, increased SOE dividends, and the potential privatization of non-strategic state assets.

While Danantara is positioned as a cornerstone of Prabowo’s economic vision, concerns are mounting over transparency, political influence, and the governance structure of the fund—particularly given the prominence of Prabowo loyalists in its management.

2. Populist Social Spending Initiatives

A key pillar of Prabowo’s domestic agenda is a universal free school lunch program, launched in phases beginning January 2025. The initiative, aimed at improving child nutrition and human development indicators, is estimated to cost approximately $27 billion USD annually. This is part of a broader plan to support an 8% annual GDP growth target—one of the most ambitious in Southeast Asia.

Beyond the lunch program, the administration has committed to expanding defence spending, advancing public infrastructure projects, and raising civil servant wages. Prabowo has emphasized that these programs will be financed responsibly, with the government pledging to maintain the national deficit below the legal ceiling of 3% of GDP.

Despite these assurances, market participants remain sceptical about the long-term fiscal sustainability of such expansive commitments.

3. Budget Reallocations and Sectoral Cuts

To fund Danantara and the social spending agenda, the government enacted sweeping budget cuts across several key sectors:

• Higher education funding was reduced by 39%

• Healthcare budgets saw a cut of 18.5%

• Public infrastructure spending dropped by a staggering 73%

These cuts have drawn sharp criticism from civil society groups and sparked protests in Jakarta and other urban centers. Critics argue that while redirecting resources toward development goals is not inherently problematic, the magnitude and speed of these cuts could undermine the long-term capacity of the education and healthcare systems, which are essential to economic resilience.

4. Foreign Exchange Controls for Exporters

Another significant policy shift came in February 2025 with a new rule requiring exporters to retain 100% of their foreign exchange earnings within Indonesia. This replaces more flexible regulations that had allowed for partial retention or repatriation of earnings overseas.

The move is aimed at strengthening foreign reserves and stabilizing the rupiah, but it has proven controversial among export-oriented businesses, particularly multinationals operating in manufacturing and extractive sectors. Many investors see this as a return to protectionist tendencies that could hamper Indonesia’s competitiveness in global markets.

 5. Expansion of the Military in Civil Administration

Prabowo, a former general, has expanded the military’s role in domestic governance. The army has been assigned to oversee the rollout of the national meal program, and military personnel have been appointed to senior policy-making positions across ministries. In March 2025, a fast-tracked law further broadened the scope of the military’s involvement in government.

These developments have raised alarm bells among rights groups and investors, who worry that Indonesia may be drifting away from democratic norms. Comparisons to the Suharto era have resurfaced, especially amid growing public demonstrations led by students and civic activists.

6. Tax and Revenue Policy Reforms

To finance his ambitious programs, Prabowo has proposed increasing the government’s revenue-to-GDP ratio from 12% to 23%, largely through enhanced digital tax collection and improved compliance, rather than through rate hikes. A potential corporate income tax cut from 22% to 20% is under review, contingent on overall revenue performance.

There is also discussion of forming a new tax agency modelled after the U.S. IRS, but implementation remains uncertain. If successful, these reforms could streamline business compliance and enhance Indonesia’s investment climate—but investors remain cautious as details are still lacking.

Market Impact and Investor Sentiment

The cumulative effect of these policies has introduced significant volatility in Indonesian financial markets:

• The rupiah fell to a 27-year low, triggering concern over inflation and foreign debt servicing

• The Jakarta Stock Exchange Composite Index dropped 7.1% in March, its sharpest monthly decline in over a decade

• Foreign investors have withdrawn $1.3 billion from Indonesian equities so far in 2025, including large-scale sell-offs of SOE shares

Investor confidence has been rattled by the centralization of economic power, the opaque management of state assets, and the political overtones of fiscal and institutional reform.

Strategic Outlook for Foreign Investors

Foreign investors now face a dual reality under President Prabowo’s administration:

Positive Signals:

• Large-scale investment opportunities through Danantara in infrastructure, banking, and energy

• Pro-business rhetoric and active courting of U.S. and global firms

• Tax policy adjustments that may improve competitiveness

• A young, growing population and rich resource base

Heightened Risks:

• Governance and transparency concerns, especially around SOEs

• Exchange controls that complicate capital mobility

• Uncertain fiscal trajectory amid ambitious spending

• Military encroachment into civilian governance

• Domestic protests and reputational risks related to democratic backsliding

Assessment

President Prabowo’s first six months in office reflect a bold attempt to reconfigure Indonesia’s economic trajectory. For investors, the landscape now offers greater upside—but with sharper risk edges.

Indonesia remains a critical Southeast Asian market with substantial potential, but foreign capital is increasingly adopting a cautious, wait-and-see approach, particularly as the full implications of Prabowo’s economic nationalism, fiscal policies, and political restructuring continue to unfold.