JAKARTA — One year after taking office on Oct. 20, 2024, President Prabowo Subianto’s government is leaning on expansive social spending and market interventions to lift growth, even as investors scrutinize the costs and durability of the approach in Southeast Asia’s biggest economy. The policy choices matter well beyond Indonesia’s borders: as a G20 member and key supplier of nickel and palm oil, a misstep here can ripple through global markets.
Stimulus helped revive growth after a weak start
Indonesia’s economy slowed to 4.87% year over year in the first quarter of 2025, its weakest pace since 2021, before accelerating to 5.12% in the second quarter, official data show. Statistics Indonesia (BPS) attributed the Q2 rebound to stronger household spending, investment and a holiday-driven bump in mobility, alongside the disbursement of civil servants’ 13th-month pay and social assistance that supported consumption. Bank Indonesia (BI) separately maintained a 2025 growth outlook of 4.6%–5.4%. Those figures are drawn from BPS releases and BI guidance published on Aug. 5, 2025 and Aug. 5, 2025, respectively.
The midyear pickup followed a targeted stimulus push. In early June, then–Finance Minister Sri Mulyani Indrawati unveiled a 24.44 trillion rupiah package for June–July that included fare discounts, rice assistance for low‑income households, and wage subsidies, while scrapping plans for a temporary electricity discount because the budgeting could not be completed on time. The ministry and state firms later reported 13.6 trillion rupiah in related disbursements by end‑June. These measures were confirmed by the finance ministry’s briefing reported by Reuters and subsequent updates from the state news agency Antara.
Monetary policy turned more supportive as well. BI has cut its benchmark rate multiple times since late 2024, including moves in July, August and September 2025, to help restore momentum while trying to keep the rupiah stable and inflation within target, according to BI press statements and wire service reports.
A broader turn toward interventionism
Since January, the administration has rolled out the Free Nutritious Meals (MBG) program, a flagship promise aimed at tackling stunting and boosting local demand. As of mid‑October, the palace and the state news agency said roughly 11,900 kitchens were serving about 35.4 million recipients daily, with authorities targeting a larger rollout into 2026. At the same time, the finance ministry said only a small fraction of the 2025 MBG budget had been spent by June, underscoring implementation challenges. The program has faced isolated food safety incidents that prompted temporary kitchen closures and tighter controls, as noted in recent government briefings and Reuters coverage.
Other interventions have been extended or repurposed. Wage subsidies of 300,000 rupiah per month were paid in mid‑year to roughly 17 million lower‑income workers and several hundred thousand teachers, while the government introduced or prolonged income tax relief for specific sectors and continued a reduced 0.5% final tax for micro and small enterprises. In October, new Finance Minister Purbaya Yudhi Sadewa — appointed in a September reshuffle — signaled more stimulus into the fourth quarter and expressed confidence growth could accelerate, even as the full‑year deficit is projected below the 3%‑of‑GDP legal ceiling, according to ministerial briefings and Reuters.
Food sovereignty moves reshape the rice market
Prabowo has placed food sovereignty at the center of his long‑term vision. The government raised the state purchase price for unhusked rice to 6,500 rupiah per kilogram from Jan. 15, 2025, and instructed state logistics firm Bulog to prioritize domestic procurement, aiming to avoid imports this year after buying 3.7–4.5 million tons in 2024. Bulog set a 2025 buying target of 3 million tons and, with military and police assistance in distribution, helped stabilize supply to low‑income households. Those changes were detailed by the food affairs ministry and reported by Reuters and Antara.
The policy has trade‑offs. Retail prices for medium‑grade rice hit historic highs again in late 2025 despite larger harvests and bulging stocks, as aggressive state buying and relaxed quality rules tightened supplies in open markets. Authorities have responded by releasing reserves and expanding subsidized sales; officials now say Indonesia can forgo imports through December after a production rebound, although consumer prices remain a political pressure point, according to government statements and Reuters.
Institutionally, Jakarta is centralizing agriculture support. A February presidential instruction put tens of thousands of agricultural extension workers under the agriculture ministry to quicken field assistance, and fertilizer subsidies were streamlined so registered farmers can redeem allotments using national ID cards at kiosks, replacing legacy paperwork systems. The directives and rollout have been documented in public law portals and Antara dispatches.
Markets weigh faster growth against fiscal credibility
The second‑quarter growth surprise masks uneven private‑sector signals. BPS data show household consumption rose just under 5% in Q2, while investment jumped 6.99% year on year, yet foreign direct investment fell 6.95% in the same quarter — the steepest drop since early 2020 — amid global uncertainty and tariff risks, the investment ministry told Reuters. Credit growth and car sales have wobbled, even as rate cuts feed through slowly to lending rates.
Politics also intersected with market views. The Sept. 8 removal of respected technocrat Sri Mulyani Indrawati as finance minister initially rattled investors and the rupiah before Purbaya Yudhi Sadewa pledged continuity on the deficit rule and growth‑friendly policies. Ratings agencies have said sustaining near‑5% growth in 2025 is “challenging” as external demand cools and household spending softens, according to comments reported by Reuters and other financial wires.
On the fiscal side, the government has mixed consolidation with targeted supports. It announced ceremonial and travel spending cuts early in the year while expanding social programs and, in mid‑October, extended a property VAT break on eligible homes through 2027 to back the real‑estate supply chain. Officials have also floated bank liquidity placements to spur lending in the fourth quarter. The finance ministry says the 2025 deficit will remain under the 3% cap, with a balanced budget envisaged by 2027–2028 if revenues strengthen and temporary supports fade.
The second‑year test: from consumption to productivity
Analysts broadly agree the near‑term boost has come from transfers, food aid and holiday effects. The harder task is pivoting to productivity‑led growth that can absorb labor at scale: industrial upgrading beyond commodities, export diversification, and measured import replacement without stoking price spikes. The manufacturing sector grew 5.68% in Q2, helped by base metals and food and beverages, but sustaining that pace requires investment traction, policy clarity and stable financing costs, BPS data and BI commentary indicate.
What to watch next: whether the government can execute the MBG expansion safely and on budget; whether centralized farm extension and irrigation spending tangibly lift yields; and whether rate cuts and tax incentives revive private investment after the mid‑year FDI slump. The administration insists 8% growth is attainable within the term; most forecasters see a narrower band around 5% without deeper reforms, according to wire service polling and central‑bank guidance.
For additional regional context and analysis, see our coverage of ASEAN growth dynamics on Globally Pulse.
