Indonesian President Prabowo Subianto, contending with protests over the cost of living, claims the mantle of nation builder. Yet his ambitious and pricey plans are not economic development as usual. They resemble a muscular form of state capitalism, one dependent on the leader’s imprimatur. Welcome to Indonesia Inc.
The pitch is problematic. At its best, the approach can propel Indonesia’s growth toward Prabowo’s target of 8 percent, a clip that few countries enjoy and which is much faster than the current expansion. The shift, in theory, would equip Indonesia for an era of intense economic and strategic rivalry, as well achieve progress on the road to becoming a high-income country by the middle of this century.
However, the president must also ensure that the sprawling archipelago lives within its means. His recent budget projections do not inspire huge confidence.
Illustration: Mountain People
Another risk is that favored industrialists become too cozy with decisionmakers. The potential for corruption, which has dogged the republic for decades, is significant.
In addition, the former top army commander needs to address discontent about low wages and entrenched inequality. Public anger at a hike in lawmakers’ allowances has fueled street protests in major cities that took on new impetus after the death on Thursday of a motorcycle taxi driver who was crushed by a police armored vehicle. Prabowo offered his condolences, chastised the officers and ordered an investigation.
Authorities also vowed a firm response to what they called “anarchic acts.” Three people died on Friday in the eastern city of Makassar, while buildings throughout the country have been set ablaze. The home of Indonesian Minister of Finance Sri Mulyani Indrawati was reportedly targeted by looters.
The demonstrations, which led Prabowo to cancel a trip to China and revoke some legislators’ perks, come at an important juncture. After a messy start to his term, Prabowo has consolidated his authority and imposed discipline on the administration that was lacking in its early months. The president’s allies have a tight grip on parliament, he has enlisted the troops in his social welfare agenda at the risk of blurring the line between civil and military functions, and pushed the central bank to embrace his go-for-growth strategy. A powerful new sovereign wealth fund, which reports directly to him, has stakes in several top state companies.
He is now asking business elites to acknowledge his sway and buy into his plans, literally. The request is framed as an exercise in patriotism. The sovereign fund, Danantara, plans to issue more than US$1 billion in bonds to corporate leaders. The love of country will apparently extend to accepting below-market yields on the securities.
“The Patriot Bonds are a rally call to our most capable businesses; to shoulder the work of nation-building alongside the state, to pool resources for projects that will define the next century of prosperity,” Danantara said in a LinkedIn post last week. “It’s like impact-first funds: those willing to sacrifice returns if it pushes their cause forward.”
Another way of putting it: You have done well out of Indonesia in the past few decades and now is your chance to give back — and continue to do well.
Prabowo will be paying close attention to who steps up and who might be wavering. Borrowers typically want their bond sales to succeed and the government of Indonesia is no exception.
However, the republic has a difficult legacy when it comes to relations between the state and oligarchs. Under the late autocrat Suharto — Prabowo’s former father-in-law — graft reached epic levels before his ouster in 1998. Suharto’s children were enriched by interests in highways, shipping, banking and autos. Prabowo needs to be acutely attuned to the optics of his plans, if nothing else.
Indonesia can use the money. The leader has some far-reaching objectives: A free school lunch program, a giant sea wall along Java’s coastline and the development of agricultural cooperatives. Prabowo remains nominally committed to completing a new capital in the forests of Borneo, even if enthusiasm for the project appears to have dimmed. All this costs money and, for a country dependent on capital from abroad, requires a fair bit of diplomacy — and adherence to rules.
Laws constrain the budget deficit to 3 percent of GDP and, as a candidate last year, Prabowo spoke about the restrictions with skepticism. He wanted state power to drive a better economic performance. The president recently projected a fiscal shortfall next year of 2.5 percent, less than the 2.8 percent penciled in for the current year, despite the lack of new taxes. He even flagged a balanced budget by 2028. That is a stretch.
It is clear that Danantara will have a massive role to play. Prabowo wants all levels of government — and society — marshalled in pursuit of his goals. His predecessor, Joko Widodo, was a self-made businessman who sought to cut red tape, and make it easier to hire and fire. Workers who might have hoped that Prabowo’s appeals to populism would include some effort to address their underlying concerns are right to worry.
The defining moments of his presidency are probably still some way off, but remaking commerce in a country of Indonesia’s size is not done easily or without friction. To make change sustainable, Prabowo could do worse than take a breath — and try to bring everyone along.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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