Adisti Sukma Sawitri – Despite pledging continuity with the policies of his predecessor, Joko 'Jokowi' Widodo, President Prabowo Subianto's first year in office seems to be taking its own direction. It is marked by efforts to expand the role of the central government through military and centralised command.
'A nation's strength lies in how it controls and manages its resources,' Prabowo declared in his first state of the nation address in August, revealing his intention to build a state-led economy aimed at delivering welfare to the people.
Yet this early push for state capitalism, anchored in a more assertive central government, rings hollow. Former general Prabowo relies heavily on the military as an engine of development rather than confronting Indonesia's fundamental economic challenges.
The major strides he has taken to expand the government may have contributed to the nationwide anxiety that culminated in the deadly August unrest, the worst in decades. After a week of protests that left at least ten dead, angry mobs ransacked homes of lawmakers and then-finance minister Sri Mulyani Indrawati.
Prabowonomics
Prabowo's fascination with state capitalism and big government can be traced to his 2023 book Paradoks Indonesia dan Solusinya (The Indonesian Paradox and Its Solutions), which outlines his admiration for China's state capitalism under Deng Xiaoping, and Singapore's rapid economic growth. He argues that these models succeed because the state controls natural resources and key industries, a vision he links to Article 33 of Indonesia's Constitution, which emphasises economic nationalism and state control over productive assets.
Prabowo's commitment to centralised coordination also stems from excesses of decades of decentralisation, which have led to corruption and fragmented policy execution, especially in natural resources management.
Local administrations are often seen as inefficient, resulting in sluggish private investment in strategic sectors. In this context, Prabowo's call for stronger state leadership may restore prudence and speed in decision-making – goals that resonate with local and foreign investors frustrated by bureaucratic incompetence.
Prabowo has set ambitious targets, including 8 percent GDP growth, way above the 5 percent average of the past decade under Jokowi. Many doubt this can be achieved.
Elite power consolidation
To consolidate power and minimise political resistance, he has also unified representatives of national elites – political parties and former presidents, including Jokowi – into an expansive cabinet of more than 100 ministers.
The line-up blends holdovers from the Jokowi era, loyalists from Prabowo's own political party Gerindra, and military figures from his inner circle – such as Sjafrie Sjamsoeddin as defence minister, nephew Thomas Djiwandono as deputy finance minister, and brother Hashim Djojohadikusumo as special envoy for energy and environment.
Among the ministers is also Stella Christie, a Harvard-educated brain and intelligence expert from Tsinghua University, appointed as deputy minister of higher education, science and technology. She leads the Sekolah Garuda (Garuda schools) initiative for talented students in STEM fields, reflecting Prabowo's aspiration to foster innovation as a driver of national development.
Using this overwhelming control in the House of Representatives, Gerindra has pushed through revisions to the military and state-owned enterprise (SOE) laws, establishing institutional pillars for Prabowo's state capitalism.
The revised SOE law gave birth to a sovereign wealth fund, Danantara, modeled on Singapore's Temasek. Overseeing about 1,000 state-owned firms worth an estimated US$900 billion, Danantara is meant to anchor Prabowo's economic agenda. But results are yet to be seen as the fund still builds its institutional setup.
The amended military law allows active officers to occupy civilian posts and roles within the government and SOEs. It also triggers the establishment of new Army, Navy and Air Force regional commands, special forces and 'territorial development battalions,' intended not only for defence but also for supporting national development programs. Sjafrie has pledged to create 100 new such battalions each year to assist industrial downstreaming and food security initiatives.
The expanded role of the military and central government's bureaucracy is supported by significant state budget reallocations to fund priority programs, especially free nutritious meals for schools (MBG).
Missing targets
Problems arise because program implementation has been forceful and fiscally strained. For example, the government doubled the MBG program's budget to Rp 335 trillion (US$20.4 billion) while reducing regional transfers, fueling local resentment. Cases of food poisoning among school students underscore weak oversight of the program.
There is also a deeper issue. The benefits of this populist initiative are long-term and diffuse, as most recipients, who are still school students, are not yet part of the current workforce. This means Indonesia's short-term challenges remain unaddressed: low productivity, a weak job market, and a high rate of informal employment.
Lacking new growth engines, the administration has relied on budget 'efficiency' and asset recovery to finance its programs this year. Law enforcement bodies have already reclaimed Rp 13 trillion (US$825 million) from a crude palm oil graft case, and recovered 3.7 million hectares of illegal palm oil estates in other cases. Assets worth Rp 7 trillion were also seized from a major tin corruption case. A new asset forfeiture law currently being deliberated would strengthen the state's authority to seize properties linked to corruption.
National Economic Council deputy chair Mari Elka Pangestu, who recently released a joint study with Australian National University professor Shiro Armstrong, argues that the August crisis reflects accumulated weaknesses over the past decade. Indonesia has not regained its pre-pandemic growth trajectory. Only the mining and digital sectors have expanded above trend, while manufacturing remains stagnant, except for those tied with natural resources sector.
The result is low-quality growth – 5.12 percent in the second quarter this year, mostly low-wage informal jobs. The National Labour Force Survey in February showed that 59 percent of Indonesia's 145 million workers are in the informal sector, lacking contracts, social protection or steady income.
After the August crisis, the government launched post-crisis measures: internship programs, expanded cash transfers, and Rp 200 trillion in bank liquidity. But these policies still do not address the absence of growth engines that form the structural roots of low productivity. A coherent national economic strategy has yet to emerge.
Past experiences and the way forward
Prabowo's expanded role of the military in national development mirrors earlier experiments with economic nationalism under Sukarno's 'guided democracy' and Soeharto's military-backed corporatism.
Yet history offers warnings. Sukarno's era ended in crisis and conflict within the armed forces that culminated in a violent anti-communist purge and his downfall in 1960s. Soeharto's model likewise collapsed during the 1998 Asian financial crisis, which exposed the country's corruption and weak economic institutions.
If Prabowo hopes to emulate China and Singapore, he must balance political consolidation with technocratic competence. Danantara must transition toward targeted, growth-oriented investments with tangible results. For example, it is critical for the fund to build the country's waste management infrastructure, but it must also invest in commercially driven projects in high-impact sectors.
Prabowo may consider continuing Jokowi's infrastructure legacy. Whereas Jokowi emphasised basic infrastructure such as roads and ports, Prabowo could focus on efficient urban transport and high-density connectivity in economic zones. Such investments would enhance workers mobility and productivity – foundations for sustainable growth.
Food and energy, Prabowo's declared priorities, hold potential as growth drivers but only if linked to meaningful technology and innovation. Agriculture remains dominated by low-paying, low-productivity jobs. Mechanisation and digitalisation could transform the sector, raising both yields and incomes. A recent study by the World Bank shows that Indonesian workers in digital-intensive roles earn substantially more than those in non-digital jobs, even in the informal sector.
Jokowi's second tenure championed the digital economy and marked the beginning of tech boom in the country. Unfortunately, the boom has become a bust thanks to poor business management of the startups, while jobs have only emerged surrounding ride-hailing, food delivery and e-commerce activities. Stronger connection to food and energy sectors may revitalise the tech sector in the country.
Can Prabowo go beyond symbolism?
Prabowo's promise of state-led prosperity will depend on whether he can translate centralised authority into productivity rather than bureaucratic expansion. Indonesia needs industries before it needs instruments of control.
Economic nationalism anchored in military involvement may deliver symbolic unity, but only rule-based governance, competitive markets, and disciplined institutions can transform it into real economic power.
Source: https://indonesiaatmelbourne.unimelb.edu.au/prabowos-first-year-unconsolidated-state-led-capitalism