The Indonesian economy will continue to be under pressure, regardless of who becomes Minister of Finance. The country's main economic problem is not who gets appointed to that position, but the President's reckless fiscal policies. The geopolitical turmoil resulting from the Iran-United States-Israel war has only exacerbated the already damaged domestic situation.
This is why President Prabowo Subianto's discussions with several candidates for Finance Minister in recent days have not led market participants to reconsider Indonesia's uncertain economic prospects. The rupiah exchange rate and the Jakarta Composite Index did improve slightly – albeit for just two days. This was due to the Bank Indonesia's decision to raise interest rates and bond yields on June 9, 2026.
These short-term policies only address the side effects. Indonesia is like someone suffering from Stage IV cancer. They cannot just treat symptoms but must amputate the deadly cells. Indonesia's economic cancer is President Prabowo's wasteful priority projects, which have had no significant impact on the economy. On top of that, power has been centralized in many areas, and there has been political interference in market mechanisms.
The Free Nutritious Meal (MBG) program, the Red-and-White Village Cooperative initiative, and defense equipment spending take up 19 percent of the State Budget. These three expenditures do not directly stimulate the economy. As a result, the deficit has soared to nearly 3 percent of gross domestic product, the maximum limit allowed by the Constitution. The economy has slumped. Mass layoffs are becoming widespread, as industries struggle to cover production costs, while individual purchasing power is weakening.
As Chatib Basri, a former Finance Minister who was summoned by Prabowo, put it, the Finance Minister's job is simple: increase revenue, borrow, or cut spending. Since Prabowo took office, tax revenues have failed to reach targets due to the sluggish economy. The public has opposed raising tax rates, as this would further burden industry and households.
Borrowing is not easy. Extravagant projects deter potential buyers of government securities, unsure of Indonesia's economic prospects. The government has tried enticing them with high returns. Consequently, even if they succeed in securing debt, the costs are significant. Ultimately, debt becomes a burden on the public budget.
This leaves the final option: cutting major spending, particularly Prabowo's three priority projects, plus fuel subsidies. The Middle East conflict has driven oil prices higher than 2026 State Budget assumptions. Coupled with the weakening rupiah, import costs and fuel subsidies are now many times higher. However, cutting subsidies would free up fiscal space to stimulate the economy.
Facing financial hardship, the government has taken corrective measures. For example, they reduced the cost of the MBG program from Rp335 trillion to Rp268 trillion. The costs and number of Red-and-White cooperative outlets were cut by 50 percent. There has also been an initiative to revoke Danantara's export monopoly and Bank Indonesia's decision to raise interest rates.
However, these corrective measures have not fundamentally caused the Indonesian economy to rebound. This downturn was caused by Prabowo's state capitalism consisting of monopolies and political intervention. Prabowo's economic logic contradicts market's logic, which demands stability, certainty, and transparency. This means that Indonesia's economic recovery does not depend on who becomes Minister of Finance, but rather on how quickly Prabowo recognizes the mistakes he has made in economic development.
The government must correct its mistakes in the shortest time possible. The militarization of forest management through the Forest Area Control Task Force must be corrected immediately. Unjust practices, such as the forced placement of export proceeds, which disrupts corporate cash flow, must be stopped. The central bank must not be interfered with, and Danantara's business monopoly must not be tolerated. The recent market pushback against Indonesia demonstrates that Prabowo's command economy is failing.
– Read the complete story in Tempo English Magazine
Source: https://en.tempo.co/read/2108976/prabowo-is-the-proble