• Defense Minister Prabowo Subianto won the presidential vote held in February in the most dominant run by a nonincumbent since direct elections were introduced. The election was widely considered free, fair and legitimate.
  • The rupiah is at its weakest in nearly half a decade due to global economic uncertainties. The central bank has increased its interest rate, potentially impacting consumption.
  • The composition of the House of Representatives will not see dramatic changes, with PDI-P, Golkar and Gerindra still the three largest parties.
  • Cabinet negotiations are underway, and a broad ruling coalition, like the one currently in power, is imminent. Most ministers will be party cadres.
  • Current President Joko “Jokowi” Widodo remains one of the most popular democratically elected leaders in the world, and a large majority of Indonesians view the country’s political and economic situation positively.
  • Indonesia will complete one of the world’s longest transitions of government when Prabowo is inaugurated October 20. Members of Parliament will be sworn in earlier in the month.
  • Indonesia will host elections November 27 for nearly all provinces, districts and cities. They will be held in a new, simultaneous format meant to bolster operational efficiency and political stability.
  • Technical regulations concerning health care, energy, the digital industry and standardization will be issued during the forecast period and will have significant sectoral implications.
  • Prabowo is set to define a more comprehensive foreign policy agenda that nonetheless adheres to Indonesia’s nonaligned doctrine. His assertiveness in international affairs will be juxtaposed with Jokowi’s softer approach.
  • The first batch of state personnel will move to the new capital city of Nusantara within the last half of 2024. Official independence day proceedings in August will be held there. Foreign investment in the new capital has been minimal, and fundamental questions about the plan remain.

Indonesia Market Overview and Forecast

Political Climate

Prabowo Subianto To Assume Presidency in October

Electoral disputes were exhaustively resolved, losing pairs have conceded and the vast majority regard the results as legitimate. It is settled: continuity candidates Prabowo and Gibran Rakabuming Raka, President Jokowi’s son, will take office October 20 without much controversy. The moderate division sown over alleged state support for the winners will further recede. Companies can expect a full return to one of Southeas­t Asia’s most stable political climates, following some election-related uncertainty that never posed a serious threat from the outset.

No Lame Duck Parliament and Shifting Influence Within Cabinet

Parliament traditionally ramps up legislative activity toward the end of its term, and this cohort, set to dissolve September 30, is no exception. The urgency to leverage their remaining time, especially among those departing, coupled with the cohesive working dynamics among members, unaffected by the election’s outcome, lend themselves to a rigorous lawmaking agenda with elite political and financial interests at its core. Legislation on the docket, such as the annual budget and the prospective Renewable Energy, Broadcasting and Consumer Protection bills, may have far-reaching consequences.

Conversely, interrelationships within the Cabinet have been in flux since the lead-up to the February vote, marked by Jokowi’s endorsement of the winning pair. While technical policymaking — involving bureaucrats with terms more or less independent of the transition — remains active, ministers supportive of the president’s political agenda now have greater influence over strategic government decisions. For instance, once inner-circle appointees like Finance Minister Sri Mulyani Indrawati are reportedly consulted less frequently. Any ministerial engagement by businesses prior to October must consider this new reality and the prospective influence of senior officials in the next administration.

Reorganization of the Big Tent

Political parties with seats in the next Parliament and that backed losing presidential candidates are swiftly joining the upcoming ruling alliance. Two have already committed, while another is signaling interest. Only PDI-P, which secured the most seats, appears willing to be in the opposition, though this stance may still change. A larger parliamentary majority would facilitate the efficient realization of the incoming administration’s agenda, and Prabowo’s overwhelming control of the House is all but certain.

This big-tent coalition, a hallmark of Indonesian politics, means ministries will be divided among parties, mirroring Jokowi’s second term. The only near-guaranteed exception is the Finance Ministry, conventionally entrusted to professionals. Prabowo may also opt to increase the number of ministerial portfolios, possibly up to the maximum 34, to accommodate power sharing and policy priorities.

While speculation dominates Jakarta regarding potential appointments, confirmation will come only when would-be ministers are summoned to the palace after the president-elect’s inauguration. Observers are guessing which ministers will remain, but apart from several allied party bigwigs, Prabowo may very well choose newcomers based on his own political calculations.

Election Year Continues

Voters nationwide will simultaneously elect governors, regents and mayors November 27. The outcomes could impact licensing, incentives and the implementation of various central government policies in regions where businesses operate. Subnational elections are characterized by politically fluidity and are often detached from national dynamics.

Macroeconomic Climate

Restrained Growth Amid Global Uncertainties

Indonesia is poised for 5 percent annual growth, slightly below initial expectations. Ongoing conflicts in the Middle East, uncertainty surrounding the U.S. Federal Reserve’s interest rate and sluggish global demand for key commodities have contributed to less trade predictability.

Household consumption — the primary driver of economic growth — remains robust along with consumer confidence. However, this resilience may see restrained growth throughout the forecast period. The increase in the Bank Indonesia interest rate, aimed at addressing global uncertainties despite low headline inflation, will unlikely be reversed in the near term. Potential increases in fuel and food prices, with the latter already concerningly high, could also exacerbate economic pressures.

The Dawn of Prabowo’s Expansionary Policy

Despite his continuity campaign, “Prabowonomics” will lead to a significant expansion in social assistance programs, with large investments in food and energy infrastructure. Jokowi is prepared to collaborate with Prabowo on the budget and kick-start his policy priorities. However, major initiatives — and their potential impact on growth — will have to wait until the new administration is settled and the next fiscal year begins. This will also herald the introduction of a more aggressive tax expansion and collection policy, aiming to more than double the tax ratio in coming years.

Investment Environment

Nonstop Investment but No Fresh Reforms in Sight

First quarter investment totaled $25 billion — a staggering 22 percent yearly growth — with more than half originating abroad. Indonesia is again on track to shatter annual records. Nearly a fifth of this sum is associated with the government’s downstreaming strategy, and recent visits by foreign tech CEOs indicate confidence in Jokowi’s approach to investment. Prabowo will espouse a similar outlook, with a potentially greater effort to diversify sources of capital without jeopardizing flows from China.

The forecast period will not witness any major reforms, and Prabowo has not shown an interest in introducing legislation like the seminal Job Creation Law or sectoral omnibus laws in the short term. Instead, the contradiction between aspirations for greater foreign direct investment and the implementation of haphazard protectionist policies has become more apparent, exemplified by controversial import regulations and cronyism in mining permitting. Rules pertaining to standardization, health care and the digital sector are scheduled to be promulgated this semester and will likely reflect this trend, potentially complicating interest from foreign investors.

We will continue to keep you updated on developments in Indonesia as they occur. If you have any questions or comments, please contact BGA Indonesia Managing Director Douglas Ramage at dramage@bowergroupasia.com.

Best regards,

BGA Indonesia Team