JAKARTA – President Prabowo Subianto’s slew of populist programmes that requires massive funding, declining tax revenues and questions over new sovereign wealth fund Danantara taking the reins at state-owned entities (SOEs) all converged to dent investor sentiment on March 18, sparking a market sell-off as Indonesian stocks tumbled to levels not seen in over a decade, analysts said.
The Jakarta Composite Index, Indonesia’s main stock index, fell by as much as 7 per cent, the biggest intraday slump since September 2011, triggering a temporary trading halt during the morning session before closing at 6,223.4 points, or 3.8 per cent lower than the previous day.
Growing worries over a weakening economy and slowing consumption in South-east Asia’s largest economy shook investor confidence, resulting in the market sell-off, analysts and economists said.
They said there are doubts about whether the Prabowo administration can sustainably fund populist programmes that have placed a strain on already stretched finances and prompted widespread austerity measures. These include the president’s signature billion-dollar free meals programme for schoolchildren and pregnant women launched in January, which aims to feed 17.5 million people by the end of 2025 alone.
“The government is launching ambitious populist policies, but we see the funding is not there,” Mr Anthony Budiawan, an economist with Jakarta-based think-tank Political Economy and Policy Studies, told The Straits Times.
Concerns about Indonesia’s growth prospects are mounting, following Mr Prabowo’s recent directives to reallocate funds towards his priority projects. The country posted a rare budget deficit early into the year, amid declining state revenues.
A 30 per cent drop in Indonesia’s tax revenue in January-February 2025 has analysts and economists fretting about the country’s fiscal health, as they warn of the risk of a widening budget deficit as Mr Prabowo presses on with his costly spending plans.
“There is a clear risk that government spending will have to go down, which in turn would cause contraction to the economy… The shortfall in tax collections would trigger many things,” Mr Anthony said.
He added that deflation recorded in February, ahead of the Lebaran or Hari Raya Aidilfitri celebrations marking the end of the Muslim fasting month – which is when people usually spend more – is not a good sign either.
Not to mention the recent mass layoffs that are amplifying fears of a slowdown. Some 60,000 workers from 50 companies lost their jobs in January and February, according to the Indonesian Trade Union Confederation (KSPI) in a media statement on March 15.
Sritex, one of Indonesia’s biggest textile companies, closed operations in March and laid off more than 10,000 employees after being declared bankrupt.
KSPI chairman Said Iqbal attributed the job losses to companies doing poorly in an uncertain economic environment, and plant relocations, among other factors.
Mr Chandra Pasaribu, head of research at Jakarta-based equity brokerage house Yuanta Sekuritas, told ST that while there is no shortage of initiatives by the government, “there is a lack of public confidence over the implementation and governance” measures.
Indonesia’s new sovereign wealth fund Danantara launched on Feb 24 is the latest initiative by Mr Prabowo to deliver on his ambitious economic growth target of 8 per cent within his first term in office.
Danantara will serve as an investment vehicle and holding company for the country’s SOEs. It hopes to boost these companies’ roles in driving the national economy.
Indonesia’s new sovereign wealth fund Danantara is the latest initiative by President Prabowo Subianto to deliver on his ambitious economic growth target of 8 per cent within his first term in office.PHOTO: AFP
Critics have questioned the new fund’s governance structure, and whether it can improve the SOEs’ performance in a business environment rife with red tape and corruption.
Danantara, with its full control over selected SOEs, will report directly to Mr Prabowo. Its board members comprise former presidents Susilo Bambang Yudhoyono and Joko Widodo, political allies close to the current administration and some influential names in business and finance.
In addition, local media reports have hinted that veteran Finance Minister Sri Mulyani Indrawati may soon step down, spooking investors.
The finance minister herself firmly denied the rumours. “I am not resigning and will continue my role in safeguarding state finances,” she said at a press conference later on March 18.
Local media reports have hinted that Indonesian Finance Minister Sri Mulyani Indrawati may soon step down, spooking investors.PHOTO: REUTERS
Dr Sri Mulyani attributed the day’s market turbulence to a mix of global and domestic factors, noting that it remains unclear whether the downturn reflects broader economic and political dynamics in the nation.
“The finance ministry continues to manage the state budget with prudence and professionalism,” she added.
Meanwhile, analyst Henry Pranoto, based in Jakarta, believes Indonesia’s macro-economy remains in fairly good shape. Indonesia’s foreign exchange reserves rose to a new record of US$156.1 billion (S$208 billion) at the end of January 2025, from US$155.7 billion in December 2024. This means the country’s central bank has ample room to defend the weakened rupiah, he told ST.
”Indonesia’s stock market currently remains very attractive, with the price earnings ratio at 15 times, lower than the 10 years’ median of 20 times, while dividend yields stand at 4.5 per cent – the highest in the past 10 years,” he added.
- Wahyudi Soeriaatmadja, based in Jakarta, has been Indonesia correspondent at The Straits Times since 2008.
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