Economic Management Megalomania

April 15, 2025 | 04:00 pm

TEMPO.CO, Jakarta - Donald Trump’s tariffs policy makes matters worse for the under-pressure Indonesian economy. The Prabowo team is not speaking with one voice.

PRESIDENT Prabowo Subianto has no reason to ignore the threat of economic recession that is staring us in the face. Without structural and fundamental policy improvements, the sharp falls in a number of key indicators could bring disaster to the Indonesian economy.

The Indonesian economy has been under pressure since the end of 2024. On January 31, 2025, the rupiah exchange rate fell to Rp16,312 to the United States dollar, and continued to fall, surpassing the Rp17,000 level three months later. The Composite Stock Price Index (IHSG) dropped, so that trading was suspended on March 18 and April 8. In the last three months, the IHSG has been in free fall, dropping by 16.82 percent.

Another indicator is the worsening proportion of public savings. According to the Bank Indonesia Consumer Survey, the ratio of savings to total income in February 2025 was only 14.7 percent, far below the 2018-2024 ratio of 16.7 percent. As well as this, the level of consumer spending measured by the Mandiri Spending Index as of March 2025 grew by only 1.4 percent, less than the March 2024 figure of 4.7 percent.

No less worrying is the unemployment rate. According to the Manpower Ministry, 18,610 people were laid off from January to February 2025, twice the number for the same period in 2024. And according to the Indonesian Trade Union Confederation, 60,000 workers from 50 companies have lost their jobs.

And on top of the domestic problems, a no less heavy blow has come: the new tariff policy of United States President Donald Trump. As well as setting a base tariff of 10 percent for all trading partners, Trump has applied reciprocal tariffs on nations that have a trade surplus with the US. One of these is Indonesia, which was hit with a reciprocal tariff of 32 percent after recording a 2024 trade surplus of US$16.8 billion.

The sharp falls in a number of indicators that could lead Indonesia to the brink of a crisis are a direct result of the government’s chaotic economic management. Prabowo’s underestimation of the threat shows his arrogance. From many aspects, Indonesia’s economy does not have a surfeit of resources to ward off pressure.

It is regrettable that Indonesia was late in responding to Trump’s tariffs. The Indonesian government only recently formed a negotiating team. Meanwhile, the US ambassadorship has remained unfilled since July 2023. Because of an endless tug-of-war of political interests, the new ambassador will only be appointed after Trump announces his new tariffs.

The government needs to immediately carry out its plan to deregulate the procedures that have hampered business and trade. The promise to abolish import quotas, which have become an arena for rent-seeking and made the economy inefficient, must be carried out consistently.

Prabowo must respond to public skepticism that his determination is simply empty words. As has often been said, those benefiting from import quotas are those close to the President, or people who provided him with logistical support in the 2024 presidential election. There has been much gossip that Prabowo does not understand—or is pretending not to understand—about the map of various raw materials importers.

The command economy system that Prabowo constantly boasts about has caused many problems. Some of them are the establishment of the Daya Anagata Nusantara Investment Management Agency (Danantara) to manage the assets of state-owned enterprises, the budget cuts, and the forcing through of the free nutritious meals program. In addition, the dominance of the military, which has led to the rise of state ‘thuggery’ in corporate affairs, has led to uncertainty in doing business.

Prabowo must restrain his ego by postponing these ambitious programs that could lead to economic distortions. At the same time, he should strengthen the domestic economy and begin to reduce dependence on outsiders.

And the cabinet must be slimmed down. Ministers who do not have the right competences—and who are only in the government because they helped Prabowo win the election—should be removed. People are saying that officials are nothing more than rent-seekers. Keeping the fat in the cabinet will only result in a government suffering from chronic obesity.

Without fundamental changes, it is only a matter of time before we are struck by an economic crisis.

Read the Complete Story in Tempo English Magazine

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