Indonesian President Prabowo Subianto has announced a plan for the government to take control of the country’s major commodities exports, in a bid to boost government revenue at a time of global economic disruption.
In what Reuters described as “a fiery, 95-minute speech” to parliament, Prabowo said that Indonesia had lost as much as $908 billion due to the undervaluing of its commodities at the time of export. He said that exports had been underreported by “fraud or deception” in order to reduce taxes, and that increasing state control would lead to more revenue flowing into the national accounts.
“The primary objective of this policy is to strengthen oversight and monitoring – and to combat under-invoicing, transfer pricing, and the diversion of export proceeds,” Prabowo said, as per the Associated Press. He added, “We don’t want low revenue only because we have no courage to manage our own resources.”
Prabowo said that the new policy will start with palm oil, thermal coal, and nickel products – three commodities in which Indonesia is the world’s leading exporter. Under new regulations, a new state-owned enterprise, Danantara Sumberdaya Indonesia, will take over control of exports of these commodities, although more commodoties may be added later as the government sees fit. According to Nikkei Asia, this company will be 99 percent owned by Danantara, the sovereign wealth fund launched by Prabowo in February of last year.
State-owned enterprises are already heavily involved in every key resource sector, but currently handle only a small proportion of Indonesia’s commodities exports.
“I tell my cabinet, formulate prices for nickel, gold. Every price must be determined by us,” Prabowo said, according to a Reuters report. “If they don’t support our price, then they don’t have to buy it. We can use it ourselves.”
There are signs that the policy is intended to redress other challenges facing the Indonesian economy, which have frustrated Prabowo’s plan to achieve 8 percent annual economic growth during his five-year term. In his address to parliament, the Indonesian leader said that the revenue windfall will help offset the soaring cost of the country’s fuel subsidies, which are shielding the public from the full impact of the price surge caused by the Iran war and the closure of the Strait of Hormuz. This has placed additional pressure on the national budget, which was already under strain due to the Prabowo administration’s expensive social programs.
Prabowo also announced a measure requiring all exporters of natural resources to keep their entire export revenues in state-owned banks from June 1. This is at least partly intended to stabilize the rupiah, which fell to a new record low this week, amid a stock market slump and a jump in global oil prices. The currency has now depreciated by more than 14 percent since Prabowo took office in October 2024 and is now worth less against the U.S. dollar than during the Asian financial crisis of 1997-1998.
The announcement marks a striking augmentation of the state’s power to intervene in the economy, and as such is likely to rattle international investors, many of whom are already leery about the unpredictable and arbitrary nature of economic policy under Prabowo.
In January, the global index provider MSCI threatened to downgrade Indonesia to frontier market status due to a number of transparency concerns in its stock market, including the high concentration of ownership in certain companies and the limited “free float” of tradeable shares. This was followed by ratings outlook downgrades by both Moody’s and Fitch, the latter of which cited the “increasing policy uncertainty and erosion of Indonesia’s policy mix consistency and credibility amid growing centralization of policymaking authority.”
In a five-page letter sent to Prabowo last week, the China Chamber of Commerce complained that foreign companies are now dealing with “excessively stringent regulation, over-enforcement, and even corruption and extortion by competent authorities.”
“These problems have severely disrupted normal business operations, directly undermined long-term investment confidence, and caused widespread concern among Chinese-invested enterprises,” the group said, as per Nikkei Asia, which added that Japanese business lobbies had also expressed similar concerns.
The fact that Prabowo would respond to the current economic challenges by doubling down on state intervention in the economy is no surprise, and reflects the long-standing orthodoxy that the Indonesian state has the right to ensure that it derives a significant profit from its natural resources. For the past decade, the country has pursued a policy of industrial downstreaming, particularly in the nickel sector, which is designed to encourage foreign companies to invest in local processing operations rather than simply exporting raw materials. At the same time, this lurch toward greater intervention is inevitably prompting comparisons to the Suharto era, the economic crisis that brought about its end in 1998.
In an article yesterday, Bloomberg opinion columnist Karishma Vaswani argued that the depreciation of the rupiah in particular recalled the Asian financial crisis. “President Prabowo Subianto says he knows how to fix the problems facing Indonesia,” she argued. “Yet his economic mismanagement and authoritarian tendencies are steering the nation toward a familiar mix of currency instability and political chaos.”
While this assessment is likely overblown, doubling down on such overt interventionism is unlikely to assuage outside concerns about the current administration’s capricious and uncertain policymaking process.
“Under normal conditions, investors might take more time to assess the policy details,” Dedi Dinarto, associate director at strategic advisory FGS Global, told Nikkei Asia. “But when the rupiah is under pressure, and the equity market is already weak, introducing a new layer of state control mechanism over strategic assets can quickly become a confidence issue.”
Shares in Indonesian coal, nickel, and palm oil producers all fell on Prabowo’s announcement.
