Indonesia’s 7 deadly (economic) sins

Little has changed since economists prescribed these seven demands

Nine months ago, a collective of more than 400 Indonesian economists, under the Alliance of Indonesian Economists (AEI), published seven demands directed at the administration of President Prabowo Subianto just before he completed his first full year in office.

Among other things, the AEI questioned President Prabowo’s unwillingness to evaluate his populist Free Nutritious Meals (MBG) and Red and White Village Cooperatives (KDMP) programs, which have continued to receive his full political backing despite their evidently problematic conception, implementation, and budget allocation.

Nine months later, these demands seem to have fallen on deaf ears. The Rupiah has hit a historic low. The IHSG contracted by 35 percent in the past five months. The central bank’s independence has been put under the microscope, all while we’re witnessing, in real time, how state intervention continues to choke the economy.

Amid the chaos, the President, on the other hand, has just returned from his 54th overseas trip in only 19 months since assuming office.

What is going on in Indonesia?

To answer that, we thought it’d be a good idea to look back at the AEI’s seven demands from nine months ago. We think they have remained relevant and, most importantly, might just be what the government needs to course correct:

1. Comprehensively rectify budget misallocations and reallocate them to policies and programs fairly and proportionally.

2. Restore the independence and transparency of state institutions

3. Stop state dominance that risks weakening local economic activity

4. Deregulate policies, permits, and licenses, and simplify bureaucracy

5. Prioritize policies that address inequality across its various dimensions.

6. Restore evidence-based policymaking and technocratic decision-making processes, and eliminate populist programs that undermine fiscal stability and prudence.

7. Improve the quality of institutions, build public trust, and promote sound governance of state administrators and democracy.

In this edition of The Reformist, we are keeping tabs on the government’s seven economic sins and how these seven demands could’ve (and would’ve) prevented the fiasco unfolding before our eyes today.

1. Gluttony: Budget misallocations

The AEI’s first demand is for the government to rectify budget misallocations across the state budget, most notably in the costly MBG and the President’s other flagship programs.

When the demand was made last September, Indonesians were only just beginning to feel the effects of a sweeping political and economic restructuring under the Prabowo cabinet. Through Presidential Regulation No. 1/2025, the government imposed widespread austerity cuts that gutted longstanding budget transfers to local governments, slashed ministerial allocation, and wound down several programs inherited from the previous administration.

Much of the fiscal space freed by these cuts was then redirected toward Prabowo’s pet projects. MBG bore the most visible price tag. In 2025, it received an initial allocation of Rp 71 trillion, already a substantial commitment for a program still finding its footing.

This year, that figure has skyrocketed to Rp 335 trillion, before being cut down to Rp 268 trillion recently. Mixed in the ensuing controversy was MBG’s classification as an education expenditure, a budget category constitutionally required to receive at least 20 percent of total state spending. In practice, this means a substantial share of Indonesia’s education budget is now spent on a program that has been spoiled by food poisoning incidents, rent-seeking, and, most recently, the arrest of Dadan Hindayana, Head of the National Nutrition Agency (BGN), by the Attorney General’s Office on corruption charges.

While the government has made some concessions, the broader fiscal posture has changed little, if at all. Local transfer funds (TKD), which finance essential public services across the archipelago, remain under pressure, while the KDMP pushes ahead with its rollout across tens of thousands of villages, drawing on both village funds and state financing despite limited evidence of economic impact to justify such a large-scale intervention.

Nine months since the AEI made their demands, the populist burden on the state budget has not diminished. So far, it has merely been rearranged.

2. Envy: Undermined institutional independence

The AEI’s second demand is for the government to restore the independence of state institutions. Back when it was written in September 2025, concerns about Bank Indonesia (BI), the country’s central bank, had begun to surface. From burden-sharing arrangements during the COVID-19 pandemic to political pressure for lower interest rates, debates around BI’s independence are hardly news, as Prabowo never shied away from publicly pushing the envelope further.

In many instances, the administration repeatedly signaled its expectation that BI would “support” Prabowo’s 8-percent economic growth target—even amid a weakened rupiah and monetary deterioration. When Prabowo appointed his nephew, Thomas Djiwandono, as BI’s Deputy Governor, economists and market observers saw it as an unnecessary politicization of an institution whose credibility rests heavily on its perceived independence. On 4 June 2026, the House of Representatives (DPR) passed an amendment to the P2SK Law, which extends BI’s responsibilities to include supporting economic growth and job creation, in addition to maintaining monetary stability.

A dual mandate is not unprecedented. The US Federal Reserve, for example, balances price stability and employment objectives. But this is where context matters most: in an administration that has already placed a family member within the leadership of its central bank, concerns over institutional independence are inevitable.

Yet this story extends beyond the central bank. The independence of many other state institutions has weakened. For example, the Corruption Eradication Commission (KPK) is a shell of what it once was before then-president Joko Widodo amended the KPK Law in 2019. In turn, the AGO has emerged as the primary anti-corruption law enforcement. From the Rp 200-trillion Pertamina adulterated fuel scandal and Tom Lembong’s sugar import case to the recent Nadiem Makarim’s Chromebook trial, the AGO has steadily positioned itself at the center of some of the most prominent graft investigations of recent memory.

As the AGO’s role expands while the KPK weakens, questions arise over who gets investigated, which cases are prioritized, and how much influence political considerations have on law enforcement.

Nine months since the AEI made their demands, patterns of institutional intervention have only become clearer. There is no question that institutions exist, but can they really keep political leaders in check when the lines have blurred?

3. Lust: Unrelenting market interference

The AEI’s third demand is for the government to stop state dominance from crowding out the local economy. Today, it’s clear that they have chosen an entirely different path.

Rather than fulfilling its role as a regulator, the government has made it clear that they want a piece of the market share. Through the military, the police, state-owned enterprises, and flagship programs, the government has significantly increased its footprint in Indonesia’s economy.

The MBG program provides the clearest example, through the Nutritional Provision Service Unit (SPPG) kitchens serving as all-in-one intermediaries responsible for procuring, producing, and distributing meals to schools. The rapid expansion of SPPGs has created appealing opportunities for rent-seekers who view MBG’s lucrative contracts and minimal oversight as a breeding ground for politically connected or state-affiliated actors. The police, for example, own over 1,179 SPPGs as of February this year. Meanwhile, the military had already claimed 452 branches by the end of 2025, with a stated ambition to scale to 2,000 kitchens this year.

Politicians have not been shy about participating either. Late last year, the daughter of a South Sulawesi legislator was found to have registered ownership of 41 SPPG kitchens, despite regulations limiting ownership to a maximum of ten units per individual.

The market raids by political and state-linked actors go far beyond MBG. Both the police and the military have been spotted cultivating farms at food estate program sites and building KDMP offices, marking further encroachment by security forces into the depths of local economic activities.

At the national level, the same pattern emerges through Danantara, Indonesia’s sovereign wealth fund, which consolidated all state-owned enterprises (SOEs) under its management and holds over USD 900 billion in assets. Despite the sovereign wealth fund label. In reality, the agency has served more as a means of circumventing the state budget to advance the administration’s political goals with little to no scrutiny.

Late last year, it injected Rp 23.67 trillion into the chronically loss-making Garuda Indonesia, reducing the airline’s public float from 27 to just 7.96 percent. More recently, Danantara confirmed it had acquired a minority stake in GoTo, with reports suggesting an ambition to become a majority owner. As of now, the greater concern is that accountability mechanisms remain weak relative to the scale of the assets they manage.

The latest and perhaps most brazen example is PT Danantara Sumberdaya Indonesia (DSI), which now requires all exports of palm oil, coal, and ferroalloys to be routed through a single state intermediary.

The government argues such an arrangement is necessary to combat under-invoicing and improve oversight of strategic commodities. But we have seen how this played out before—most notoriously through the New Order’s Clove Buffer and Marketing Agency (BPPC), where crucial commodities were controlled by not only the state, but by then-president Suharto’s family and their cronies, to enrich themselves at the expense of local producers and the broader economy.

Nine months since the AEI made their demands, the concern is no longer about how much the government interferes in the market, but rather that it has increasingly become the administration’s default playbook to fulfill its unchecked political ambition.

4. Pride: Half-hearted deregulation

The AEI’s fourth demand is for the government to deregulate policies, permits, and licensing requirements that have long impeded a healthy business and investment climate in the country. They specifically criticized the increasingly costly and ineffective Local Content Requirement (TKDN) policy, which President Prabowo has publicly acknowledged as too rigid.

In September 2025, the Industry Ministry issued Ministerial Regulation No. 35/2025, which overhauled the existing TKDN certification framework. The new regulation simplifies the certification process, extends the validity of certificates, and introduces additional incentives for firms that build domestic production facilities, employ local workers, and establish local supply chains.

While this was a step in the right direction, little has been done to shift perceptions. TKDN remains a point of contention; for example, when the United States explicitly sought an exemption in the US-Indonesia trade agreement, it suggested that foreign investors remain unconvinced.

Most importantly, TKDN was never the root problem. It is that individual regulations are implemented inconsistently, creating legal uncertainty. When the China Chamber of Commerce sent a letter addressed to President Prabowo expressing alarm over the deteriorating business climate in Indonesia, they cited policy uncertainty, prevalent extortion by third-party actors, and excessive interference by law enforcement authorities as major obstacles to operating in Indonesia.

The letter was damaging enough that the head of the National Economic Council, Luhut Binsar Pandjaitan, felt compelled to publicly apologize to investors for the current state of the Indonesian economy during a speech in Singapore. If a senior government official has to come out of his way to offer a public apology, then the gap between the promise of deregulation and realities on the ground could not be more apparent.

Nine months after the AEI made their demands, investor confidence remains fragile, while the government seems unwilling to address the broader governance problems that could heal that trust.

5. Greed: Widening inequality

The AEI’s fifth demand is for the government to introduce policies that seriously address inequality across its many dimensions. Indonesia’s labor market tells the most urgent part of that story. Between 2019 and 2025, Indonesia lost more than 11 million members of its lower-middle class, with only 416,000 new members joining the middle and upper classes. In other words, for every Indonesian climbing the economic ladder, way more fell through the cracks.

On top of that, the informal sector has become increasingly dominant—making up 57 percent of the workforce—meaning more people live on an unsteady paycheck and face greater economic vulnerability. It certainly doesn’t help that only 15 percent of those informal workers are covered by BPSJ Ketenagakerjaan, Indonesia’s social protection program.

Against today’s backdrop, the lack of social protection represents perhaps one of the most glaring policy failures of past and current administrations. The government’s decision last year to lower BPJS Ketenagakerjaan monthly premiums for informal workers from Rp 16,800 to Rp 8,400 was expected to incentivize enrollment but fell short of addressing the real problem at hand.

Such a habit of choosing the ‘easiest’ way out when faced with complex problems—as opposed to addressing the structural gaps—has unfortunately become what most, if not all, of us expect of this administration.

The AEI’s demands also touched on energy subsidies policy, where—again—this administration has chosen the path of least political resistance. Rather than reforming the subsidy regime—which disproportionately benefits higher-income households that own more vehicles than those who actually need a leg up—the government has left subsidized fuel prices untouched despite well-established concerns about Indonesia’s ability to keep the charade up amid escalating geopolitical tensions that continue to disrupt global energy supply chains.

While reforming fuel subsidies has always been politically tricky, this administration has made no effort to even consider targeted policy mechanisms, such as direct cash transfers or a shock-treatment scheme for lower-income households. It’s disappointing, to say the least, but hardly surprising.

Nine months since the AEI made their demands, we’re still at an impasse. The government has no coherent strategy and, worse, no sense of urgency in communicating its plan of action. It’s even more ironic that this administration comprises the largest cabinet in our history.

Who knew that more isn’t always merrier?

6. Sloth: Impulsive policymaking

The AEI’s sixth demand is for the government to abandon its impulsive policymaking and return to evidence-based, consultative, iterative, and technocratic processes. Nine months on, the diagnosis has not only persisted, but arguably worsened. More policies have instead emerged seemingly on a whim without rigorous deliberation.

Prabowo’s hasty policymaking is perhaps best illustrated by Danantara, which was announced one month into his presidency despite never being mentioned during his presidential campaign. Within four months, Danantara was granted authority over one billion dollars in Indonesia’s state assets before its governance framework was even close to being properly established.

When Prabowo announced the export body DSI two weeks ago, we saw the same pattern reemerge. With no buildup whatsoever, the new agency was set to start operations this month. Days prior, the government had just rolled out a new policy requiring exporters to retain their earnings in state-owned banks and convert 50 percent of those funds to rupiah. Whimsical policies like these make it hard to blame the Chinese investors for what they complain about in their letter. It’s almost like this administration is on a mission to always double down on something where all the signs say they’re wrong.

Whether Danantara ultimately succeeds or not is besides the point. Entrusting any newly formed institutions with such extraordinary powers is simply preposterous.

Many have also pointed out Prabowo’s comical tendency to promise to include a new foreign language in the school curriculum based on the country he visits. First came Portuguese, which he said after meeting the Brazilian President Luiz Inácio “Lula” da Silva, and then, more recently, French, during his latest visit to meet President Emmanuel Macron in Paris.

Nine months since the AEI made their demands, we continue to be served new policies that seem to be all vibe with no evidence to back it up. But the scariest part of it all is that while it took President Prabowo less than two years to do all this, undoing the damage won’t be as speedy—that is, if we learn anything from what has transpired so far.

7. Wrath: Broken public trust

The AEI’s seventh demand is for the government to improve institutional quality, strengthen democratic governance, and repair public trust. On this front, the government has done very little to quell concerns.

Since taking office, President Prabowo has personally presided over a broad expansion of the military’s role in his administration. Among other things, he has deployed TNI personnel not only for policing tasks but also for running SPPG kitchens, building physical infrastructure, and planting his food estate dreams.

The broader democratic picture offers no reassurance. Discussions about eliminating direct local elections, crackdowns on freedom of speech, and unempathetic public communications leave public trust in the government hanging by a thread.

In mid-March, a group of military intelligence personnel attempted to assassinate human rights activist Andrie Yunus by attacking him with corrosive acid. Andrie has been a well-known critic of the military’s encroachment into civilian affairs since Prabowo took office. When the online media outlet Magdalene published its investigation of the case, the government was quick to restrict access to it—only to walk it back a few days later amid loud public outcry.

Over on the police side, things have not exactly been better by any means. While the military has been the subject of stronger scrutiny as of late, the government’s lack of urgency in advancing police reform in the aftermath of the killing of Affan Kurniawan during the August 2025 protest has only strained public confidence further.

Yet perhaps the most revealing of it all is how the government—particularly President Prabowo—has chosen to deflect any and all criticisms, from “villagers don’t use the dollars anyway” to “why don’t you just escape to Yemen then”.

Nine months after the AEI made their demands, public input has not only been dismissed but also often ridiculed or even penalized. Without accountability, the government risks losing sight of its most crucial duty: to listen.

Where to go from here?

Perhaps what is most concerning is not what other bad policies the government has come up with, but the extent to which it is willing to defend its policies through coercive and intimidating tactics rather than step away from its ivory tower to listen carefully.

That none of the economists’ concerns have been meaningfully acted on nine months later is, in many ways, a direct consequence of this. It is no secret at this point that channels of communication to the President are extremely difficult under this current administration. Information either comes from an individual close to the President or goes through a rigid, selective information tunnel through Cabinet Secretary Teddy Indra Wijaya.

The effect of hollowing out dialogue is exactly what is happening to the country right now. Investors, markets, and civil society at large are reluctant to take part in a society that fails to listen to its people. Reversing the Rupiah’s downfall or revising the MBG may take time, but if the government is truly serious about upending the current situation, it may need to lower its ego and allow room for dissent, sending the right signal that change is possible.

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Writer/Researcher: Rayhan Kalevi

Editors: Nea Ningtyas, Ravio Patra, Nathaniel Rayestu