arket volatility, investor unease and fiscal strain are exposing deeper risks in Indonesia’s economy – where policy ambition is running ahead of institutional readiness.
Prabowo Subianto, the country next door’s egotistic leader is running a worthwhile but uncosted pre-election promise made to win votes without understanding how the pieces might fit and the scheme work. The message is for governments everywhere: get your ducks in a row – policy precedes delivery.
First, some background – and cheering news for readers who holiday in exotic places where beer is cheap and getting cheaper. That’s Bali.
For much of last year, the exchange rate was easy on the fingers – a true digital calculation – around 10,000 rupiah to the Down Under dollar. Now it’s more than 11,500.
Great for backpackers; even if your bar sneakily adds another buck to the next Bintang, but bad for the locals, particularly those who remember Krismon and fear its second coming.
It sounds like a horror movie monster, and that’s almost right. In 1998 the portmanteau word for krisis moneter (no translation needed) devoured the second president, Soeharto after 32 years of autocracy.
In the last week of January confidence in Indonesia’s corporate world slumped when the Composite Index fell eight per cent one day and ten per cent the next. The US 80 billion markdown was reportedly its worst performance since Krismon.
The New York based global index compiler MSCI (formerly Morgan Stanley Capital International) threatened to downgrade the ratings of Southeast Asia’s biggest economy over transparency issues, spooking investors and forcing two senior executives to quit.
Other troubling factors have been Prabowo’s abrupt sacking of his predecessor’s finance minister – the US-trained Dr Sri Mulyani Indrawati. After nine years in the job she was apparently given an hour to collect her handbag and leave the building.
Not the sort of gesture to calm investors. Reuters reported she “was widely regarded as one of the few checks on Prabowo’s big growth and spending promises that had unnerved many investors.”
The President then appointed his nephew deputy governor of Bank Indonesia. Thomas Djiwandono is also treasurer to his uncle’s Gerindra Party. His father Joseph is a former BI governor.
The Ozzie dollar used to buy just under 2,000 rupiah before Krismon – then it jumped to 10,000, which is where it’s been hovering for much of this century. Now it’s on the move again sending trembling traders to the gold brokers.
This is despite the nation next door enjoying a growth rate of around five per cent, almost double ours.
Indonesia is awash with greenback billionaires, mainly in mining, palm oil and tobacco industries. The inequalities are frightening. The Indonesian Centre of Economic and Law Studies’ latest report is provocatively titled: Private jets for the rich, bicycles for the poor.
It claimed that “the wealth of the 50 richest individuals in Indonesia is equal to the total wealth of 50 million Indonesians.”
Countries can get bogged in the mud of debt when a government abandons frugality and oversight for indulgence and prestige. The previous President Joko ‘Jokowi’ Widodo splashed more than AUD $7.5 billion on Ibu Kota Nusantara.
The new inland capital in Kalimantan (on the island of Borneo) is being built to replace overcrowded and sinking Jakarta on the north coast of Java. But after four years, IKN is empty streets, not busy boulevards.
Passages in the kitsch presidential palace, which was supposed to mark civilian Jokowi’s legacy, are corridors of cockroaches.
The neglect is partly because the eighth president is a disgraced former general. Prabowo is a divorcee with little interest in gilded lounge suites and queen beds.
Like a good macho bloke, his bag is fighter planes, missiles and bombs, though there are no known threats to the world’s fourth most populous country with 285 million citizens.
That proves arms are a deterrent, say those who argue more guns make for a safer nation. Others prefer to invest in the health and wisdom of future generations.
Curiously, that includes Prabowo. Despite making 21 trips to 28 countries in the past year, reportedly to encourage investment and order bang-bangs, he’s best known for spending more on the wee folk so they can grow into big archipelago islanders.
Before the 2024 presidential election, the media was dripping with sad stories about stunted kids. About one in five grow slowly and with impaired facilities because their thin mums had no milk and their backyard clay pots only boil weevilly rice.
The curse of poverty, the devil of disparity.
In a pledge to fix the problem during a TV debate, Prabowo promised a Makan Bergizi Gratis (free nutritious meals) program. He won the election with more than 56 per cent against two candidates with excellent credentials but nothing on the stove.
PS started shopping around the world. Citizens quibbled about the new boss buying 42 French Rafale fighter jets (cost AUD $11.5 billion), but the free meals were okay at first.
Then some kids started groaning and writhing with food poisoning – at least 10,000 victims last year.
To get the MBG cooking, Army kitchens were used. Soldiers may be good at greasing rifles but not cleaning dishes. Rotten food and poor hygiene were blamed for the sickness along with under-funding forcing corner-cutting, but a revived civilian scheme is now trying to repair Prabowo’s promise.
The government has allocated more than AUD $28 billion to feed the multitudes this year, threatening future arms purchases; it’s also testing limits to the national budget.
Government income from personal tax is below ten per cent, one of the lowest rates in the developed world. (It’s 41 per cent in Australia.)
At the end of January, the International NGO Forum on Indonesian Development backed a Constitutional Court’s judicial review of the law behind the free tucker “because the education budget allocation … has been misused to finance the MBG programme, which is not legally defined as education costs.”
The Constitution requires 20 per cent of the budget on schooling; the annual deficit is legally capped at three per cent of GDP. It’s currently 2.92.
The Education and Teachers’ Association says it’s concerned that the MBG programme is draining and delaying the payment of operational funds and teachers’ salaries.
However, supporters, like Tajinan public junior high school principal Ainul Mutamakin, said the program has improved attendance and learning among his 570 students, and released mums from another domestic chore – filling kids’ lunchboxes.
The meals in stainless steel lidded containers come from a nearby just-opened kitchen with modern facilities.
The 47 staff are supervised by a whip-cracking economist Arifatur Rofiah sending two meal-laden trucks on time to seventeen local schools. Her discipline and hygiene rules aren’t negotiable.
The program originally included milk; some Australian farmers saw business opportunities and started exporting Friesians, but many Indonesians are lactose intolerant.
Cooking is at night, and menus differ daily to keep the kids keen. Schedules are tight because the food is cooked at night and delivered early, as schools don’t have fridges.
The MBG program is upsetting Constitutional lawyers. Last year, it was in dispute with claims of corruption through food supplies and jobs for the boys and girls. But is it improving kids’ health?
It’s too early to tell, but if the kitchen seen by P&I is typical of the 80 across Java, then Prabowo’s hasty pledge appears to be holding.
It’s not tackling the root problem of poverty causing stunting, particularly in distant provinces like Papua (30 per cent) and East Nusa Tenggara (37 per cent).
According to the World Bank, the rate in Australia is below two per cent so the problem is fixable. The extra serve in the steel trays should be political will with a side dish of tax reform.
Prabowo is a proud man so his flagship social program will probably survive. That means MBG is here to stay unless it gets poisoned by Krismon and the economy suffers from stunting.
The views expressed in this article may or may not reflect those of Pearls and Irritations.
Australia West Papua Association Adelaide 