A bright spot among Indonesia’s economic governance problems, and a crucial part of its economic growth story since its recovery from the Asian Financial Crisis, has been the steadiness and credibility of its macroeconomic management. The two key pillars of that credibility have been strong fiscal guardrails and the independence of monetary policy (and financial system oversight) from political influence.
The weakening of the first of these pillars under President Prabowo Subianto explains the scepticism of financial markets towards Indonesia over the past year or so. Wasteful social programs have strained the budget and diverted scarce revenue from urgent investments in infrastructure and education. The sovereign wealth fund Danantara’s new importance as a channel for public investment — and de facto sovereign debtor — has clouded the transparency of the state of public finances.
The central bank, Bank Indonesia (BI), has increasingly had its work cut out defending the rupiah as investors grow leery of Indonesia’s economic direction under Prabowo. BI’s policy interventions have put it at odds with Finance Minister Purbaya Yudhi Sadewa and his agenda of boosting financial sector liquidity and credit growth, pursued most prominently via his transfer since late 2025 of 400 trillion rupiah (US$22.3 billion) in unspent national budget funds from BI accounts to the balance sheets of state-owned banks.
