Jakarta, in the early months of 2025, stands at a pivotal moment. As the global economic landscape shifts under the weight of renewed US tariffs and geopolitical realignments, Indonesia under President Prabowo Subianto faces a dual challenge: sustaining domestic growth while navigating an increasingly volatile international trade environment. With inflation at historic lows, a controversial sovereign wealth fund rollout, and mounting concerns over investor confidence, the archipelago nation’s economic policies are under intense scrutiny. How Indonesia balances these pressures may define its trajectory for years to come.
Historic Lows and Hidden Woes
Indonesia’s inflation touched a decades-low rate in December 2024, driven by electricity discounts and waning consumer spending power, as reported by multiple outlets. While this might signal stability, analysts warn of underlying issues. “Low inflation can reflect weak demand, not just policy success” said Dr. Anindya Bakrie, an economist based in Jakarta. The end of electricity subsidies in early 2025, coupled with the Idul Fitri holiday spending surge, has already nudged inflation slightly upward, though it remains below Bank Indonesia’s target range. Bank Indonesia, in response, has maintained its benchmark rate while pledging aggressive intervention to support the flagging rupiah, which hit new lows against the dollar this year.
Consumer confidence, meanwhile, has sunk to a five-month low, with retail sales showing minimal growth despite the festive boost of Idul Fitri. The rupiah’s weakness weighs heavily on pharmaceutical and consumer goods firms, increasing import costs for essentials. For ordinary Indonesians, economic anxiety is palpable. Reports of layoffs in manufacturing and coconut processing—where 3,500 workers were let go due to raw material shortages—herald a bleak outlook for many families. “This year’s holiday bonus barely covered debts” said Rudi Hartono, a laid-off factory worker in Surabaya, capturing a sentiment echoed across social media platforms. 
Global Trade Turbulence and US Tariffs
The reintroduction of US tariffs under President Donald Trump’s second term has sent shockwaves through Southeast Asia, with Indonesia particularly vulnerable. The country’s trade surplus spiked in late 2024 as exports to the US surged ahead of the tariff implementation, but analysts predict a sharp decline as the measures take full effect. Textile manufacturers, already struggling with global competition, are now lobbying to ramp up imports of US cotton to curry favor and avoid retaliatory tariffs. “We must think carefully before maneuvering through these policies” said Trade Minister Zulkifli Hasan, emphasizing a cautious approach to US-Indonesia trade relations.
Indonesia’s palm oil producers, a cornerstone of the national economy, are pivoting to African and Middle Eastern markets as US tariffs bite. Yet, global market backlash against proposed hikes in coal export prices—another key revenue stream—complicates diversification efforts. Amid these challenges, Indonesia’s strategy of maintaining close ties with China, often dubbed the “China+1” approach, remains intact despite US pressure. President Prabowo’s administration has also distanced itself from BRICS-led de-dollarization efforts, wary of potential US backlash, even as the nation joins the BRICS-backed New Development Bank.
Sovereign Wealth Fund: Promise or Peril?
One of Prabowo’s flagship initiatives, the newly launched sovereign wealth fund, has sparked both hope and skepticism. Designed to revive costly projects like coal gasification and oil refineries, the fund aims to channel state-owned enterprise shares into long-term investments. However, its rollout has been marred by distrust, with online calls for Indonesians to switch banks reflecting broader concerns about transparency. The inclusion of controversial figures in the fund’s leadership lineup, alongside plans to involve religious groups in its management, has drawn mixed reactions. “This could either be a game-changer or a disaster for investor trust” noted financial analyst Sari Widjaja.
Critics argue that the fund’s focus on capital-intensive projects risks exacerbating Indonesia’s austerity paradox—where public spending cuts to fund such initiatives could further dampen consumer demand. Reports of populist economic policies dragging down the Jakarta stock market, which plunged after the holiday break in 2025, add to the uncertainty. Investors, already on edge due to Prabowo’s reliance on military figures in civilian roles, are watching closely for signs of stability. If mismanaged, the fund could deepen economic inequality, which has ticked upward despite a historic low poverty rate in 2024.
Domestic Policies Under Fire
Domestically, Prabowo’s administration is grappling with a slew of economic and social initiatives that have met varying degrees of success. The free meals program, rolled out in schools nationwide, has been plagued by incidents of food poisoning, with dozens of students affected in its second week and further cases reported in 2025. While the government has pledged to continue the program during Ramadan with processed food options, public trust remains shaky. Similarly, the free birthday health check-ups initiative has seen low participation, underscoring broader frustrations with government delivery.
Tax reforms and new export rules are also stoking discontent. Businesses decry the new tax system as filing deadlines loom, while exporters face a mandate to keep 100% of earnings onshore for a year—a policy aimed at bolstering foreign reserves but criticized for stifling liquidity. Palm oil firms, meanwhile, are under pressure to allocate more land to smallholders under tightened regulations, a move that could reshape rural economies if enforced effectively. Yet, enforcement remains a question mark amid allegations of nepotism and cronyism in government ranks, further eroding public confidence.
Geopolitical Balancing Act
Economically, Indonesia’s foreign policy under Prabowo reflects a delicate balancing act. High-profile meetings with leaders like India’s Narendra Modi, Turkey’s Recep Tayyip Erdogan, and China’s Xi Jinping underscore a commitment to multilateral cooperation, with agreements on drone and warship construction with Turkey and green energy investments pitched at the World Economic Forum. At the same time, strengthened defense ties with Japan—evidenced by donated patrol boats for Indonesia’s future capital, Nusantara, and joint frigate development—signal a counterweight to China’s regional influence.
Prabowo’s vocal stance on Gaza, including plans to build a women and children’s hospital there, reinforces Indonesia’s humanitarian credentials while aligning with domestic sentiment. However, the administration’s wait-and-see approach to Trump’s Gaza plan highlights the unpredictability of US policy as a factor in Jakarta’s calculations. “We must prioritize stability in our foreign engagements” said Foreign Minister Sugiono, reaffirming support for ASEAN as a cornerstone of regional diplomacy.
Looking Ahead: A Fragile Path
As Indonesia charts its course through 2025, the interplay of domestic reforms and global pressures will test Prabowo’s leadership. The sovereign wealth fund, if managed transparently, could unlock long-term growth, but missteps risk alienating both investors and citizens. US tariffs loom as a persistent threat, necessitating agile trade strategies, while domestic initiatives like the free meals program must overcome logistical hurdles to deliver tangible benefits.
For now, Indonesians watch with cautious optimism. The historic lows in inflation and poverty offer a foundation to build upon, but weak consumer confidence and stock market volatility serve as stark reminders of the fragility of progress. As Jakarta’s skyline gleams with green office buildings—an attempt to stand out amid oversupply—the nation’s economic future remains a puzzle. Will Indonesia emerge as a resilient player on the global stage, or will internal and external challenges prove too steep a climb? Only time, and policy, will tell.
