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Prabowo banks on ambitious schemes to boost Indonesia's economic growth

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Straits Times - October 17, 2024

Wahyudi Soeriaatmadja, Jakarta – Indonesia's incoming president Prabowo Subianto has plans to grow the country's economy with pitches centred on investor-friendly and tourist-centric policies. All these in the hope of hitting a growth target of 8 per cent by his third year in office.

He is also banking on ambitious schemes such as establishing food estates that will be about 30 times the size of Singapore, and rolling out a free meals programme for 83 million people to boost local production of chickens, eggs and milk.

According to presentation slides prepared for the President-elect that were shared with The Straits Times, plans are being drawn up to make oil and gas exploration more investor-friendly, by giving greater flexibility in revenue sharing, and promoting high-end tourism with plans to get more yachts to sail into Indonesia.

The 72-year-old incoming president also aims to attract more foreign investment into the downstream mineral industry by constructing refineries for raw minerals such as nickel, tin and bauxite.

Mr Prabowo, who won the presidential election in February, will be inaugurated on Oct 20.

The new administration's plans for South-east Asia's largest economy indicate a shift from the type of projects favoured by outgoing President Joko Widodo.

Infrastructure development was a top priority for Mr Widodo, who built new highways, railway and train lines, airports and ports to enhance connectivity and drive economic growth.

Mr Widodo's 10 years at the helm saw a steady average 5 per cent annual economic growth, sturdy growth in foreign investment, and the country's rise as a key player in the supply chain providing nickel for batteries and electric vehicles.

Mr Prabowo aims to take annual growth even higher to 8 per cent during his five-year term, as the country continues with its stated ambitions to become a high-income country by 2045 from its current standing as an upper-middle-income country.

As such, among the new administration's initiatives is developing huge food estates in Papua province, a remote, under-developed region in easternmost Indonesia.

Food estates are food plantations that are usually run by local farmers and funded by the government, to promote food self-sufficiency.

The Papua plan envisions the conversion of 22,290 sq km of land – about 30 times the size of Singapore – around Papua's Merauke district to plant padi, sugar cane and cassava – a starchy tuber similar to yam.

"This (will) be a main national source of foods... We did a pilot project here with 10,000ha of rice padi fields, and the yield was six tons per hectare," Agriculture Minister Andi Amran Sulaiman told reporters during his visit to Merauke earlier this year. Rice fields in Indonesia typically yield between five and seven tons a hectare.

Estimated costs for the mega food estate project have yet to be disclosed, but are likely to range in the tens of trillions of rupiah, experts say. Local media reports say 10 companies organised into four consortiums will be involved in the plan.

Already, 47-year-old tycoon Andi Syamsuddin Arsyad – a main donor to Mr Prabowo's presidential campaign – has reportedly ordered 2,000 excavators from China, of which about 100 have arrived at the Papua site, and land clearing has begun.

Another ambitious programme is dishing out free meals to as many as 83 million people, which will cost 400 trillion rupiah (S$34 billion) a year. The beneficiaries will include students, toddlers and pregnant women, who will be given nutritious foods like chicken, eggs, fish and milk.

Indonesia is self-sufficient when it comes to the first three food items.

An estimated 9 per cent of Indonesia, the world's fourth-most-populous nation, live below the poverty line of 583,000 rupiah per person a month.

The free meals programme, which starts in 2025 and aims to end malnutrition in the country, has drawn mixed reactions in the country of 276 million people. Its supporters say the programme will help reduce poverty, while its detractors have expressed concerns about more green areas being cleared for food-producing purposes.

Meanwhile, the nickel mining programme initiated by Mr Widodo has boosted the country's nickel exports to an estimated US$40 billion (S$52 billion) in 2024, up from just US$4 billion in 2017.

The Widodo administration has offered numerous incentives, including tax holidays, to foreign investors to build nickel smelters in the country – a sector which Mr Prabowo hopes to expand further.

In the energy sector, however, Indonesia has been a net importer of petroleum since 2004 due to ever-rising domestic demand, coupled with declining crude oil production in mature fields, and limited investment to raise production capacity.

The country produces about 600,000 barrels of crude oil per day, while domestic demand is at 1.44 million barrels per day.

Mr Prabowo's team hopes to attract much-needed international investor interest in the oil-and-gas sector with flexible terms for profit sharing.

Indonesia also hopes to welcome wealthier tourists with plans to improve its marinas for yachts and airports for private jets, and upgrade museums in the bigger cities, observers say.

Despite the ambitious plans afoot, economists and analysts say Mr Prabowo may find it hard to achieve economic growth of 8 per cent by his third year in office, and urge more foreign investor inflow to drive economic growth.

Dr Jahen F. Rezki, an economist at the University of Indonesia's Institute for Economic and Social Research, told ST: "The programmes disclosed so far do not show how we can get there."

He noted that consumer spending has been slowing and foreign investment growth has not been as robust of late.

Foreign investments into Indonesia slipped to US$253 billion from January to March from US$261.2 billion in the preceding quarter, according to data from Indonesia's central bank.

Some experts have expressed wariness about increased spending under the new administration, underpinned by costly campaign promises such as the free meals programme.

Still, Mr Agus Riyanto, a board member of Jakarta-based shipping company Humpuss Intermoda Transportasi, said there is potential in some sectors that the government can tap to fuel economic growth. "There are several geothermal projects and gas fields the government can push to commission soon," he told ST.

In addition, Mr Agus said the plan to offer low-income families free meals would also benefit local farmers and vendors supplying the food and drink, and the various small businesses that prepare and distribute the meals.

But Dr Jahen said that "without any extraordinary policies in place, it is difficult to achieve 8 per cent growth". He noted that in the past decade, Indonesia experienced 7 per cent growth only once – which was in the second quarter of 2021 as compared to the same quarter a year earlier – and that was because of the low-base effect due to impacts from the Covid-19 pandemic.

Source: https://www.straitstimes.com/asia/se-asia/prabowo-banks-on-ambitious-schemes-to-boost-indonesia-s-economic-growt

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