Prabowo Subianto is drastically cutting Indonesia’s budget
On February 24th Prabowo Subianto, Indonesia’s president, launched Danantara, a sovereign-wealth fund. At his disposal it will immediately be the largest businesses in Indonesia’s sizeable portfolio of state-owned enterprises, which have been transferred to Danantara and are worth around $900bn. Unlike an older sovereign-wealth fund, its management will report directly to the president, bypassing the conservative ministry of finance. Dividends from state-owned enterprises will flow into Danantara, not the ministry’s coffers. Never before has so much of Indonesia’s wealth been placed at the discretion of one man.
Soon Danantara will get a further infusion of cash. Last month, with no warning, Mr Prabowo ordered a one-off cut of $19bn, or 8.5%, of the annual state budget. Even Sri Mulyani Indrawati, the veteran finance minister long trusted by markets for her reputation for fiscal discipline, was taken by surprise, according to Tempo, an investigative magazine. For weeks Mr Prabowo’s administration left Indonesians in suspense as to what would be done with the unspent funds. In February, he said that most would go to Danantara.
The cuts have been deep and immediate. The public-works ministry was slashed by 70%, leading it to suspend or cancel dozens of roads, dams and bridges across the country, along with the maintenance of 47,000km (29,000 miles) of roads. The meteorological and geophysical agency, a critical resource in a country regularly afflicted by earthquakes and dotted with around 127 active volcanoes, lost half its budget. Its head says the cuts will affect its ability to warn Indonesians of tsunamis and other natural disasters to give them enough time to evacuate, potentially putting many hundreds of lives at risk.
Other ministries are turning off lights and air-conditioners at 4pm and telling civil servants to go home early. One official focused on children’s welfare says that he can bear the material inconveniences of the cuts, but he worries about children who are victims of bullying or child pornography. His agency can no longer visit them to provide support because there are no funds to do so. This month, tens of thousands of students came out to protest against the cuts in cities across Indonesia.
Make Indonesia Great Again?
The speed and scope of the cuts have prompted comparisons to Elon Musk’s DOGE efforts in America. “It doesn’t look like very well-planned policy. Some of these initiatives seem more like a knee-jerk reaction,” says Arianto Patunru at the Australian National University in Canberra. At the end of a speech on February 15th, Mr Prabowo mentioned, almost as an afterthought, that he might seek a second round of cuts as large as the first. If so, the savings would total 2.3% of GDP annually.
Some of the cuts have reflected a lack of understanding of how parts of the government work. Mr Prabowo ordered that social-welfare programmes and civil servants’ salaries were not to be touched. In practice, however, civil servants depend upon stipends to supplement their salaries, many of which have been eliminated. Contractors, too, have been fired—18,000 of them in the public-works ministry alone.
Mr Prabowo says the savings from his cuts will go to 20 priority projects. The biggest of these, his signature pledge on the campaign trail last year, is a free school-lunch programme, priced at $28bn annually by 2029 (or the equivalent of 2% of the country’s GDP). To serve it up, he has called upon his former brothers-in-arms in the armed forces to staff kitchens and deliver food. Experts say it risks doing more harm than good by focusing on calories, not nutrition. Only one in ten children in Indonesia are underweight, while two in ten are overweight. Mr Prabowo often argues that the meals are needed to tackle childhood stunting, but this condition is irreversible after the age of two, so the lunch programme cannot fix it.
Other projects to be funded by Danantara include new smelters to process Indonesia’s natural resources. These, officials hope, will help the country capture a greater share of the value of finished products made out of them. But Indonesia was already investing in such projects before Danantara was launched. Jokowi, Mr Prabowo’s predecessor, had championed “downstreaming”, or boosting higher-value activity, partly through economic nationalism. This has led Indonesia to have a near monopoly on one mineral: it produces nearly half the world’s refined nickel and two-thirds of its mined nickel.
Why the new fund, then? One possible answer can be found in its governance. Rosan Roeslani, a businessman who served as chairman of Mr Prabowo’s presidential campaign, will run it. The law establishing Danantara passed by the legislature in early February took it out of the jurisdiction of the country’s audit agency and corruption commission. Mr Roeslani has said that the two agencies will still play a supervisory role, but how this will work remains to be seen. Critics complain that this gives Mr Prabowo a freer hand than any of his predecessors to distribute patronage and carry out populist policies.
For now, Mr Prabowo’s plans face little resistance. Indonesia’s legislature has held hearings on the “efficiency” drive, as his administration calls it. Some tweaks have been made following questions from lawmakers. But no broader opposition to the cuts has come out of the body. That could yet change. Mr Prabowo has co-opted all but one of Indonesia’s political parties by naming their leaders to Indonesia’s largest cabinet in decades. If they start to lose out on funds they expected to control through those posts, opposition may gather force.
Instead, most of the pushback to the cuts is online and in the streets. Right now, the student protesters are a vocal minority. A survey in January suggested that Mr Prabowo’s support was at nearly 81%. But if the cuts begin to slow economic growth, opposition from ordinary Indonesians could build up. That is what brought down Mr Prabowo’s father-in-law, the strongman Suharto, in 1998.
The protests earlier this month were mostly peaceful. When some demonstrators in Jakarta, the capital, began throwing concrete at police on February 20th, the authorities responded with restraint. It will be important that they continue to do so. As a special-forces commander in the late 1990s, Mr Prabowo kidnapped some student activists demonstrating against Suharto’s regime. He claims that he returned all of them unharmed, but some alleged torture and others remain missing. Indonesia has changed markedly since those dark days. It should not turn back the clock. ■