Giri Ahmad Taufik – Picture a local thug in any Indonesian major city getting on an angkot (public transport minivan) to make the driver buy a bottle of water they neither need nor want. A transaction takes place. But it's hardly a business deal. It's coercion disguised as trade. The driver pays the thug not for the water but simply to avoid trouble.
That is the jago (cockfighter) economy in a nutshell. In Indonesian slang, the jago refers to a local strongman or thug who instils fear in the locals and uses coercion to demand obedience from them.
The jago economy is the mode of economic governance that the Prabowo Subianto administration seems to be institutionalising through Danantara, the huge sovereign wealth fund it established in 2025. It is evident in how Danantara operates – from semi-compulsory participation in its Patriot Bond scheme to the revocation or takeover of permits of mining firms.
Danantara's hollow capitalism
Political economists have long theorised the use of both state and privatised violence in the Indonesian capitalist development.
Yoshihara Kunio, for example, argued that Southeast Asia had produced a structurally hollow form of capitalism (erstaz capitalism), in which competitive advantage derived not from productive capacity, but from political affiliation and state-granted privileges, that is concessions, and protection. Reformasi (the reform movement that emerged after the fall of Soeharto) was meant to close that chapter, and for a time it appeared to be working.
Under President Susilo Bambang Yudhoyono, for example, economic policy remained broadly anchored in orthodox market instruments, and investment policy was designed to attract rather than conscript capital. But this did not last very long.
During Joko Widodo's (Jokowi's) decade of developmentalism, however, the jago economy returned with a vengeance, with infrastructure contracts channelled through politically-wired state enterprises, regulatory licences deployed as instruments of patronage, and the line [1]between state capacity and personal proximity to the presidency progressively blurred.
Danantara is the culmination of that trajectory. It marks a point where the jago economy has shifted from being just a tool for governance to becoming its framework.
The state-owned investment firm emphasises portfolio diversification and strategic investments, regularly engaging with international partners and positioning itself as a genuine market player. However, its capital comes from the state, its mandate is political, and its influence in any market is non-replicable by any actor without equivalent proximity to presidential authority.
It is more than just a private actor with political connections. It is a political entity role-playing as a private actor.
More coercion, fewer incentives
The evidence is palpable. The Patriot Bond, Danantara's first debt instrument, offered a coupon of 2 per cent per annum – totalling Rp 50 trillion – well below inflation and far below market rates for comparable securities.
Rather than attracting capital through competitive returns, it relied on what one Indonesian fund manager, speaking privately, described as 'partisipasi' (participation). But is partisipasi always voluntary? In Indonesia's jago economy, persuasion and coercion are distinguished only by the tone of the message.
Danantara's coercion, however, is not always subtle. On 20 January 2026, the government revoked 28 business licences in Sumatra, among them the permit of PT Agincourt Resources, which operates one of the world's largest gold mines, without formal written notification. Eight days later, Danantara's chief operating officer announced at a public investor forum that the mine would be transferred to a new state entity, Perminas, which operates under Danantara's auspices.
In this case, the state positions itself simultaneously as an enforcement authority and a prospective beneficiary of the assets being threatened.
Unsurpsiingly, markets did not respond kindly to this. Moody's revised Indonesia's sovereign outlook to negative. MSCI raised concerns about transparency. Goldman Sachs and UBS flagged erosion in the stability of the Indonesian investment climate.
Under pressure, the government retreated, the permit was not formally revoked, and Danantara's chief operating officer, Rosan Roeslani, later denied any plans to acquire the mine. But it does not matter anymore. The jago may have retracted their hand, but the locals have already seen their reach.
The Koperasi Merah Putih (Red and White Cooperative) vehicle procurement by Danantara also perfectly illustrates the logic of the jago economy.
In February 2026, the government confirmed the import of 105,000 pickup trucks from Mahindra and Tata Motors in India, at a total cost of Rp24.66 trillion, procured by Agrinas, a Danantara Subsidary, and financed through a Danantara subsidiary, the Himbara state bank.
When the cooperatives were launched in July 2025, only a handful of 80,081 cooperatives were operational, yet down payments had already been committed. The trucks arrived at Tanjung Priok port and were parked somewhere, awaiting cooperatives that existed only on paper. The domestic automotive sector, which produced hundreds of thousands of pickup units throughout 2025, was bypassed entirely.
The repayment mechanism also reflects the project's injustice. Under the original Finance Minister Regulation 49 of 2025, dana desa (village fund) served as a last-resort bailout if cooperatives defaulted. By March 2026, the new Finance Minister Regulation 15 of 2026 scrapped cooperative repayment entirely, charging principal and interest directly to the state through automatic deduction of village and regional transfer funds. The jago does not absorb the bill. They rewrite the invoice and send it to someone else.
Rule of law, not muscle
The institutional implication of Yoshihara's diagnosis is unchanged: a state-affiliated business entity that cannot be distinguished from a political access vehicle will not attract the long-term capital it claims to seek.
The reality is that the jago economy is only effective in the alleyway and likely catastrophic in global markets, where credibility and rule of law, not muscle, are the currencies. Indonesia has the assets, the institutional heritage, and the economic scale to build a sovereign wealth fund of genuine international standing.
What it currently lacks is the willingness to accept that the jago economy undermines the legitimacy of a superholding company like Danantara. Investors, unlike angkot drivers, cannot be intimidated into compliance. They simply leave.
Source: https://indonesiaatmelbourne.unimelb.edu.au/danantara-and-the-return-of-the-jago-economy