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Prabowo’s Cabinet: Continuity and Merah Putih Nationalism

Commentary by Wayne Forrest

Indonesia’s flag colors are red(merah) and putih(white) and symbolize a secular, non-ethnic, non-religious nationalism. The ideal is unity in diversity. President Prabowo Subianto, a former general and son of Indonesia’s first PhD economist, endeavors to embody this spirit. He has assembled a coalition “Red and White” Cabinet that includes many but not all of Indonesia’s major political parties (and indirectly their business patrons) as well as professionals. Several key ministers are holdovers from President Jokowi’s administration including: Finance Minister Sri Mulyani, Coordinating Economic Minister Airlangga Hartarto, Industry Minister Agus Kartasasmita, Rosan Roeslani as Minister of Investment, Erick Thohir as Minister of State-Owned Enterprises. Several others have shifted to new positions: Zuklifli Hasan, previously Trade Minister, now Coordinating Minister for Food Security; Agus Harimurti Yudhoyono, moves from Agriculture Minister to Coordinating Minister for Infrastructure and Regional Development; and Bahlil Lahadalia moves from Investment to Energy Minister. Prabowo also created a National Economic Council chaired by Jokowi’s former “chief minister” Luhut Pandjaitan (with the renowned former Trade Minister Mari Pangestu as Deputy) will provide regular, direct input. Continuity a plenty.

A new law allowed the Cabinet to be expanded from 34 to 48 ministries, enabling Prabowo to create a “big tent” coalition. 7 of the 8 parties with seats in Parliament are in it, along with several pure professionals and people affiliated with Indonesia’s two large Muslim social organizations Nahdlatul Ulama and Muhammadiyah. Like his father-in-law Soeharto, Prabowo understands the power of patronage. Together with deputy ministers, 108 were inaugurated. To counteract what could be an unwieldy collection Prabowo released a regulation (#140/2024) to enhance efficiency, transparency and inter-ministerial coordination. At the end of October, he gathered everyone at a military academy in East Java, had them wear fatigues and sleep in tents and take part in team-building exercises and workshops. Since his inauguration he has sat with former Presidents, local ambassadors, business leaders. He wants consensus; in return, everyone is offered a seat at the table. How he reconciles the ideological differences among his Cabinet, some are more global in orientation, whereas others are protectionist, in service of policy clarity could be a difficult task.

Prabowo has lofty goals: 8% growth rate, food(rice) and energy self-sufficiency, a massive free meal program for kids and moms, faster downstreaming of natural resources(led by nickel) to replace imports and boost local manufacturing, more and better jobs, poverty eradication, and a louder voice for Indonesia globally. These, except perhaps for foreign affairs, are similar to his predecessor’s.

These priorities will challenge Indonesia’s budget. His “exchequer” Sri Mulyani Indrawati (SMI) knows how to maintain fiscal discipline but she’s not a miracle worker. Prabowo had big spending plans when he was Defense Minister that she never approved. So far, her Deputy Minister Thomas Djiwandono (Prabowo’s nephew) has stated spending will not exceed the 3% budget deficit mandated by law. Fortunately, Indonesia’s inflation is so low (less than 2%) that it could probably sustain a higher deficit. SMI begins work for her third President, opening a new chapter in development finance that may become a textbook case. As well as finding a way to finance Prabowo’s major projects, she continues to oversee the nettlesome task of refinancing the debts of a long list of state-owned enterprises estimated at a whopping $186 billion. One hopes Prabowo realizes she is his “jewel in the crown” and allows her room to work her magic as best she can. If he doesn’t, inward investment could suffer at time when Indonesia sorely needs it.

Similarly, he has maintained as Coordinating Economics Minister, Airlangga Hartarto, an experienced leader who understands that there are limits to import substitution. Last year Airlangga put the brakes on a series of restrictive trade measures designed to protect Indonesian garment manufacturers from cheaper imports when it became clear it was hurting producers even more because they could not bring in needed materials that can only be found outside Indonesia. He has also pushed for Indonesia’s membership in global trade agreements.

The skills of both Hartarto and Sri Mulyani are currently being tested in the emblematic case of Sritex, one of Indonesia’s largest garment makers. The company is technically bankrupt and saddled with $1.6 billion of loans that are now due. So far, although Prabowo has declared Sritex too big to fail, the government has resisted sending bail out funds.

Along with the Sritex headache Prabowo enters office with disappointing economic data. Reports indicate that 3rd quarter GDP growth was below 5% with the middle class losing purchasing power. Given the outsize role of consumption in Indonesia’s GDP, these facts point to the yawning need for foreign investment as well as the retooling of export industries. This is unlikely to happen if content localization and resource nationalism policies are continued without modification. Righting Sritex (a huge employer and uniform supplier to US and NATO) and other firms with similar issues such as Pan Brothers, would be a huge achievement. It would send an important signal that export-oriented manufacturing, its share of GDP dropping steadily for 20 years, will again be center stage in an economy that has perhaps for too long been focused on building smelters and the promise of EVs.

Prabowo, who spent many years living abroad, will be comfortable on global stages, and hopefully, will balance his anti-colonialist rhetoric with an open approach to foreign trade and investment. Indonesia achieved 8% growth earlier in its history when it was at a lower economic level and before China was a major player. Times are very different now. Manufacturing is more automated and service work requires an educated workforce. Prabowo has a Cabinet that is highly experienced and hyper aware of global trends. His new organizing regulation looks great on paper, providing needed workflow clarity. He has the potential for great leadership in the secular, “red and white”, tradition.

What I wrote in April on this page still holds: “President Prabowo, in an age that lacks a clear development model, would be well to aspire to become the anti-corruption, tax collecting, education, judicial reform President. And by the way, be careful with industrial policy.”

 

(These views are the author’s and may not reflect those of AICC or its members.)