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Prabowo Subianto’s campaign for the Indonesian presidency centered on pledges of dynamic economic growth and substantial social reform.
However, his initial year in office has seen these populist ambitions tempered by the realities facing Southeast Asia’s largest economy.
In late August, frustrated youth, concerned about employment prospects, took to the streets to protest the rising cost of living, corruption, and inequality. The government responded by retracting perks for politicians that had ignited public outrage. Earlier in the year, significant protests also occurred in response to budget cuts impacting healthcare and education spending.
These challenges coincided with the implementation of an expensive free school meals program, estimated to cost $28 billion annually. A cornerstone of Prabowo’s agenda, the program aims to combat child malnutrition, improve educational outcomes, and stimulate the economy. Officials have described it as “an investment in Indonesia’s future.”
However, recent reports have surfaced depicting weak, dehydrated children, some as young as seven, receiving intravenous treatment after suffering food poisoning from the free lunches.
With over 9,000 children reportedly falling ill since the program’s launch in January, critics are questioning its effectiveness and whether it is straining public resources while contributing to the national debt.
Analysts caution that these challenges highlight systemic issues in public spending and oversight, which, in turn, point to deeper vulnerabilities within Indonesia’s $1.4 trillion economy.
This is a critical juncture for the vast Indonesian archipelago, home to over 280 million people spread across thousands of islands.
Despite consistent annual growth of approximately 5% in recent years, Indonesia is experiencing pressure from slowing global demand, rising living costs, and competition from regional neighbors like Vietnam and Malaysia. These nations have successfully attracted foreign companies seeking to diversify production away from China.
The August protests, resulting in 10 fatalities, underscored the extent of public discontent with Prabowo’s administration. Demonstrators accused the government of prioritizing prestige policies and projects over essential economic support.
Prabowo, who has set an ambitious growth target of 8% by 2029, and his ministers maintain their defense of current policies, asserting that they will generate employment and stimulate demand.
“We have experience growing beyond 7%. So… Indonesia knows that higher growth is achievable. But of course, we have to see the global economics and the global trade,” stated Indonesia’s Coordinating Minister for Economic Affairs, Airlangga Hartarto, in an interview with the BBC.
Experts emphasize that achieving such growth will necessitate careful management of public finances and foreign investment.
According to Adam Samdin from Oxford Economics, a new sovereign wealth fund, Danantara, targeting high-impact projects in renewable energy and advanced manufacturing, could potentially spur higher growth.
Airlangga affirmed to the BBC that Indonesia is “ready” and willing to “spend on the right sector of the economy.”
However, ambitious and challenging initiatives like the free school meals program have led some to question Prabowo’s priorities. Several health-focused non-governmental organizations are advocating for the program’s termination.
Defending the program last month, Prabowo stated, “Brazil needed 11 years to reach 47 million beneficiaries. We’ve reached 30 million in 11 months. We’re quite proud of what we’ve achieved.”
He further cited India, which operates the world’s largest school lunch program, feeding nearly 120 million students.
In contrast to Brazil and India, the Indonesian program has been criticized as ineffective despite its higher cost, largely due to the reported instances of mass food poisoning.
Indonesia faces unique logistical challenges, including a lack of infrastructure for safe and timely meal delivery to schools across its 6,000 inhabited islands, noted Mr. Samdin.
This includes a need for proper refrigerated transport, as well as adherence to strict food safety standards and sufficient resources to enforce them to maintain food freshness in the tropical climate.
The government’s reliance on third-party vendors and contractors for the program further complicates quality monitoring efforts.
However, a struggling flagship program is not Prabowo’s only challenge.
The trade policies of the United States have impacted Indonesia, which now faces 19% tariffs on exports to America.
Airlangga, who participated in trade negotiations, expressed gratitude for a tariff rate that allows Indonesia to compete with regional rivals like Thailand, Malaysia, and the Philippines, and anticipated the signing of a US-Indonesia trade agreement by the end of October.
Nevertheless, a 19% tariff remains a significant burden for exporters, who also face increased competition from Chinese goods being redirected to Asian markets to circumvent high tariffs in Europe and the US.
Indonesia, actively seeking new markets and partners, also finalized a trade agreement with the European Union last month, the result of nearly a decade of negotiations. Airlangga projects a two-and-a-half-fold increase in trade with the EU over the next five years.
However, attracting foreign investment, which has fueled manufacturing and created jobs in countries like Thailand and Vietnam, has become a challenge.
Foreign companies have long cited bureaucratic hurdles and the cost of doing business in Indonesia as impediments, although they continue to be drawn by the country’s large consumer base and abundance of natural resources, including nickel, copper (essential for electric vehicles and green technology), and palm oil.
However, these resource-based industries do not require a large workforce and have not generated jobs on the same scale as manufacturing in countries like China and Vietnam.
Airlangga has stated that Indonesia is now investing in the digital economy to stimulate job creation and growth. However, the critical question remains whether the country can adequately equip its workforce with the necessary skills to staff data centers and other such ventures.
Data centers require significant investment, and investors have been particularly unsettled by the abrupt dismissal of the highly regarded former Finance Minister, Sri Mulyani Indrawati.
Mulyani’s home was ransacked during the protests, as demonstrators blamed her for the rising cost of living. Her replacement, Purbaya Yudhi Sadewa, a relatively unknown official, has attributed the protests to monetary “mistakes.”
Sadewa is a strong supporter of Prabowo’s ambitious goal of 8% annual growth by 2029 – a rate the country has not achieved since the 1990s.
Even the current 5% rate of economic expansion is disputed by some economists, who allege that economic data has been manipulated for political purposes to align with Prabowo’s growth target. Airlangga has refuted these claims.
“I’m optimistic that Indonesia is still attractive,” Airlangga stated, citing “the value chain, the investment climate and the quickness of President Prabowo to do deregulations.”
However, economists point to declining car sales, reduced foreign investment, contraction in manufacturing, and reports of layoffs as indicators that economic activity is weakening, rather than strengthening.
“Indonesia’s economy is based on consumption, and so from the perspective it can continue to provide a steady engine even if it does not grow significantly,” Mr. Samdin explained.
“Growth might slow, but the sheer size of the population will provide some economic activity.”
While this may offer reassurance to optimistic investors, it does not resolve the significant challenges facing President Prabowo.
For locals, the promise of more tourism is a welcome opportunity – but they are also wary.
Thousands had earlier in August protested against an increase in housing allowances for MPs.
One person has died from Friday’s earthquake, which comes a week after a deadly quake hit the island of Cebu.
The collapse of the Al Khoziny Islamic boarding school is the country’s deadliest disaster this year.
There are reportedly “no signs of life” under the wreckage, where 59 people are still missing.
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