Macroeconomic Color: Indonesian Elections

posted by Karim Pakravan on February 17, 2024 - 3:25pm

One of Asia’s most consequential countries went to the polls in the past two weeks, as Indonesia held presidential, parliamentary and local elections on February 15th.  Indonesia is the largest and second largest Moslem country I the world, and the third largest democracy globally. 

Indonesia is an emerging, middle-income regional power, the largest economy in Southeast Asia, sitting at the intersection of the major global economic issues:  climate change, China-US relations and global financial architecture.  The country’s vast rainforests are a key factor in fighting global warming, yet the country suffers major deforestation. Indonesia is also a major producer of nickel ore and manufacturer of ferro-nickel, keys component of electric vehicle batteries. Furthermore, the country, an archipelago of thousands of islands, occupies a strategic geographic position on the Straits of Malacca. Indonesia follows a pragmatic foreign policy, maintaining strong economic and diplomatic relations with both the United States and China—while being a major recipient of investment from both countries. While a member of the G20, Indonesia has also applied for membership in the BRICS Forum. The country has an Investment Grade sovereign risk rating of Baa2 (Moody’s) and BBB (Fitch).

Fig. 1: Indonesia Economic Performance

The apparent winner of presidential elections is former general Prabowo Subianto,   who won with the strong support of outgoing president Jocko Widodo--official election results are not expected for several weeks. Subianto, who ran on a ticket with Widodo’s son as his Vice President, inherits a strong economy.  Over Widodo’s past two terms, (2014-2023) the economy, boosted by massive infrastructure spending, has grown by  an average of 5% per annum. And output per capita (PPP terms) rose by 45% to about $13,000 over this period.  The country’s current accounts are near balance and both the foreign and government debt remain modest.  Indonesia has also benefitted from strong foreign investment, especially from China.

Fig. 2:  Indonesia Current Account


Subianto inherits a strong set of economic cards, and is expected to maintain continuity with Widodo’s economic and foreign policies.  On the economic side, the focus is expected to be on infrastructure spending--including a massive investment on building a new capital city—and attracting foreign direct investment—Indonesia is a major recipient of China’s Belt and Road investments. Populist policies to promote economic growth are also likely to continue.

Nevertheless, Subianto remains a controversial figure with a checkered human rights record and authoritarian tendencies, even though he has rebranded himself with a softer image.  Despite a period of economic progress, Indonesia needs continued reforms to confront the problems of poverty and corruption. Subianto’s ability to balance the complex political forces at play while putting his own stamp on the country remains untested.


Note :  IMF 2023 Indonesia Article IV Consultation Summary:


Table 1:  Indonesia Economic Data (IMF)


“Indonesia’s forward-looking, and well-coordinated policies helped it close out the highlychallenging global environment of 2022 with healthy growth, falling inflation, and a stable and profitable financial system. With the recovery underway, policies have been geared toward restoring the pre-pandemic macroeconomic policy frameworks and accelerating structural reforms, to reinforce macroeconomic stability and build policy space against future shocks. Going forward, Indonesia is well-placed for continued strong and inclusive growth, supported by broad-based reforms to promote an enabling business environment diversify the economy and mitigate climate change.” IMF 2023