What's going on with Indonesia's economy?

Summary

Business Daily – "What's going on with Indonesia's economy?"

Host: Sam Fenwick, BBC World Service
Date: October 14, 2025

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Overview:

This episode of Business Daily explores the challenges facing Indonesia’s economy one year after President Prabowo Subianto’s populist administration took power. Despite promises of prosperity, free school meals, and faster growth, ordinary Indonesians grapple with rising living costs, public sector cuts, and shrinking opportunities. The show investigates the impacts on families, small businesses, and the broader economy, culminating in protests and skepticism about the government’s ambitious economic targets.

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Key Discussion Points & Insights

1. Populist Policies and Rising Discontent

• After taking office, President Prabowo introduced sweeping populist measures—most notably, a free school meal program for nearly 90 million children and pregnant mothers.

• To fund this, significant cuts were made to other government programs, including salaries for teachers and civil servants, and research funding.

  • Quote:
    "Salaries of teachers have been cut. Salaries of civil servants have been cut. Certain research programs have been cut. And that has created a little bit of dissent, unhappiness amongst many different groups of people."
    —Shoaib Kadar, Economic Journalist (03:40)

• The middle class is shrinking due to rising costs and these funding reallocations.

2. Inflation and Household Strain

• Official statistics show moderate inflation (~2%) and growth (~5%), but daily essentials like rice, cooking oil, and school fees have surged much higher. For many, income is not keeping up.
  • Anecdote:
    Apriyanti, a mother of six in Jakarta, describes money running out halfway through the month despite attempts to monitor and curb spending.
    Quote:
    "The money just runs out halfway through the month… food is getting more expensive. Groceries are getting more expensive."
    —Apriyanti, Jakarta resident (05:20–05:27)

3. Struggles for Small Businesses

• Longstanding businesses like those run by Vania Mulyadi’s family see customer traffic plummet to a quarter of previous levels.

  • Quote:
    "So the last 12 months it's been going down, down very bad. It's a quarter. It's not even half anymore. It's a quarter."
    —Vania Mulyadi, small business owner (03:38)

• This downturn is part of a broader trend affecting the entire retail sector, not just isolated stores.

4. Tax Hikes, Budget Cuts, and Impact on Enterprises

• Sweeping public sector cuts (9% reduction in government spending) to finance flagship programs cause layoffs and reduced essential services.

• A new sovereign wealth fund consolidates control of state-owned companies, leading to declining government revenues and lower local/provincial budget transfers, forcing regional tax increases.

  • Quote:
    "They need to collect more money. So basically they're squeezing businesses."
    —Shoaib Kadar (10:06)

• Companies that depend on public contracts (e.g., PR, consulting) suffer from systematic budget reductions.

  • Quote:
    "Most of government, they cut or they decreased. The budget for communication is about 50% from the previous years. So it's… impacts greatly to the business."
    —Irwan Saputra, Jakarta entrepreneur (11:05)

• Small firms become more competitive by slashing prices but struggle with reduced margins and limited hiring prospects.

5. Youth Unemployment and Heightened Competition

• University graduates and young job seekers describe a hyper-competitive market with far more applicants than positions, pushing many to upskill or accept protracted unemployment.
  • Quote:
    "I graduated in 2017 but my last job was in November 2024. I've applied to many places… It's a bit difficult because the competition is also quite high."
    —Jobseeker at Jakarta fair (13:52)

6. Public Unrest and Protests

• Frustration with living costs, social inequity, and perceived political elite privileges led to mass demonstrations—especially among students, who have historically been a driving force for reform.

  • The August 29th protests escalated after the police killing of a 21-year-old delivery driver, Afan Kuniawan, symbolizing broader grievances.
  • Quote:
    "Protesters are here to expressing their solidarity to Afan Kuniawan, a taxi or motorbike taxi driver who was killed by police last night during protests."
    —Silvano Hajid, BBC reporter (16:11)

• Responding to unrest, Prabowo cancelled a diplomatic trip, cut back MP perks, and promised a "quick and transparent" investigation.

7. Government Optimism vs. Reality Checks

• President Prabowo set a growth ambition of 8% by the end of his term, far above projections by the World Bank and IMF (~5%).

• The Minister for Economic Affairs, Ayalanga Hartato, remains publicly optimistic:

  • Quote:
    "Indonesia can only grow with a better geopolitical environment… Next year our growth is expected to about 5.4%."
    —Ayalanga Hartato, Minister for Economic Affairs (17:34)

• The government touts shifts toward capital-intensive exports (e.g., nickel) and digital economy growth as drivers for future prosperity.

  • Quote:
    "Ten years ago… our export for nickel and downstream is only $3 billion. But last year… it's increased to $33 billion."
    —Ayalanga Hartato (18:29)

• Recent stimulus measures aim to calm unrest: a nearly billion-dollar package includes food aid, cash-for-work schemes, and tax breaks, but questions persist about their effectiveness in tackling root causes.

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Notable Quotes & Memorable Moments

• On funding the free school meal program:
  "He's cut many other programs to fund his school program and that's caused a lot of other issues… once you cut salaries, that's really very difficult."
  —Shoaib Kadar (08:36)

• On small business decline:
  "It’s not even like our store, but the whole building is the same."
  —Vania Mulyadi (03:49)

• On young people’s employment struggles:
  "I have to be confident. Even though competition is high."
  —Fair attendee (14:54)

• On government optimism versus economic headwinds:
  "The policy can be accelerated toward higher growth, not only linear, but exponential growth."
  —Ayalanga Hartato (18:29)

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Timestamps for Important Segments

• Introduction & Theme Setup: 00:59–01:53
• Small Business Reality in Jakarta: 02:10–04:02
• Cost of Living Experiences at Home: 04:56–05:48
• What Fuelled Prabowo’s Victory/Populist Promises: 07:25–08:24
• Expert Analysis – Budget Cuts & Social Unrest: 08:24–10:39
• Effects on Enterprises & Local Tax Hikes: 10:41–12:18
• Young Jobseekers Describe the Market: 13:15–14:54
• Student-Led Protests & Their Escalation: 15:59–16:41
• Ministerial Perspective on Growth & Job Creation: 17:34–19:29
• Closing Analysis & Stimulus Response: 19:29–end

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Conclusion

The episode paints a portrait of an Indonesian economy at a crossroads—official stability masks significant pain among citizens and enterprises. President Prabowo Subianto’s ambitious, populist promises have delivered some benefits, but at the cost of public dissatisfaction, fiscal austerity, and unrest. Despite government optimism and new stimulus efforts, many Indonesians remain unconvinced that the prosperity they were promised is materializing, and businesses and younger generations face turbulent times ahead.

Transcript

[A]

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[B]

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[A]

No. No. Yes. SAP Concur helps your business move forward faster. Learn [e-mail] hello, and welcome to Business Daily from the BBC World Service. I'm Sam Fenick. 12 months ago, Indonesia swore in a new president. There were big promises, from free school meals to faster economic growth. But one year on, tensions have reached boiling point. Demonstrators flooded streets across the country protesting over rising costs and shrinking opportunities.

[C]

Salaries of teachers have been cut. Salaries of civil servants have been cut. Certain research programs have been cut. And that has created a little bit of dissent, unhappiness amongst many different groups of people.

[A]

Today on Business Daily, we look at how those populist policies are playing out for ordinary Indonesians, for businesses, and for the future of Southeast Asia's largest economy.

[D]

And now we're on our way to the store. So this is where the true store is.

[A]

Meet Vania Mulyadi. She's showing me around the shop she runs with her dad in the center of Jakarta, Indonesia's largest city. They first opened their doors 25 years ago. Back then, it was all about women's fashion. But over time, they started to add backpacks and suitcases, and the business grew with them.

[D]

So we started to sell the small one, and people were like, oh, this is like a very good quality. And I want a bigger one because I want to travel, like, longer. And then we start to order more, more, more. And then they keep coming back as a repeat. Customer. Our store is at the old market. So most of the people there are mostly like old people where they don't do online. So they always repeat customer, they always come back to us. So my mom and my dad, like both of them work at that same store. So that's our main income. And then right now my mom passed away and my dad wants me to continue the store. I mean, I can see the potential for it. But now the business is going down like really bad. So I need to think about something else.

[A]

And so how has it been over the last 12 months or so?

[D]

So the last 12 months it's been going down, down very bad. It's a quarter. It's not even half anymore. It's a quarter.

[A]

And what you put that down to.

[D]

This year, I don't know why but like the, the traffic, the consumer is just so slow like everywhere. It's not even like our store, but the whole building, like even the other building is the same.

[A]

On the surface, Indonesia's economy looks steady. Growth picked up to just over 5% in the second quarter and inflation's kept close to around 2%. But dig a little deeper and the picture changes. The cost of everyday essentials is climbing much faster. Take rice for example. A kilo now costs around a third more than it did just three years ago. Cooking oil is more expensive. School fees have gone up. And July's inflation jump was driven by staples like chilies, tomatoes and shallots. For many households, life is getting tougher. Our reporter Atu Destra Ajahn Rastri went to meet Aprianti, a stay at home mom living in Jakarta. My name is Apriyanti.

[D]

I'm 50. How many people are in the house? Six people. If you compare with maybe about three years ago when you're grocery shopping. Which time did your money run out faster? Now how does the comparison look? I get confused when keeping notes of money. It gives me a headache. I used to write expenses down but.

[A]

After a while I got tired of it. The money just runs out halfway through the month.

[D]

We spend more.

[A]

Now our expenses are getting bigger. Food is getting more expensive. Groceries are getting more expensive.

[D]

So how do you manage to be more frugal? Sometimes if there's still food, I don't cook for the day or the next day. If it's like that. Yes, that's how it is. If there's still food, I have to be smart.

[A]

This is Business daily from the BBC World Service.

[B]

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[A]

Sam I'm Sam Fenwick. Today we're looking back at President Prabowo's first year in power, how his populist policies are reshaping Indonesia's economy, and how frustrations over rising costs and taxes have boiled over into violent protests. When Indonesians went to the polls last year, the cost of living was high on the agenda. It was one of the reasons former military general Prabowo Subianto won office. He's a controversial figure, accused by rights observers at home and abroad of a shocking human rights record dating back to his military career. But his promises struck a chord with voters. Tax exemptions, subsidies on energy bills for low income households, and his most popular pledge, free school meals for almost 90 million children and pregnant mothers. A policy that's already started being implemented in January at significant cost.

[C]

So it is costing about $2022 billion a year.

[A]

Shoaib Kadar is an economic journalist and business consultant in Jakarta, and he founded the Indonesian Economic Forum.

[C]

So he's cut many other programs to fund his school program and that's caused a lot of other issues, right? Social issues. Salaries of teachers have been cut, salaries of civil servants have been cut. So he's been looking to cut in other areas to fund his school program, and that has created a little bit of dissent, unhappiness amongst many different groups of people. Because once you cut salaries, that's really very difficult. And if people are in the middle class and they fall into the lower middle class. So in the last three, four years, for example, Indonesia's middle class has shrunk because of rising costs and because of these programs.

[A]

Also in January, and still only three months into the job, President Prabowo ordered an immediate 9% cut to government. Government spending. It's the kind of sweeping rollback of government services that drew headlines in the United States under President Trump. And now Indonesia is going through its own version, which has led to layoffs and cuts to essential services. The savings have been channeled into his free school meal program and into a sovereign wealth fund which he controls directly. That fund has taken over state owned companies and now collects their dividends. The result of that, government revenues have dropped sharply and transfers to local and provincial budgets have been cut. Many local authorities have been forced to increase taxes and in some cases they've more than doubled them.

[C]

Indonesia has a federal system of government. There's a central government and then there are what we call provincial governments. So if you are operating in one of the provinces, you have to pay local tax. All these taxes have been rising, you know, so they need to collect more money. So basically they're squeezing businesses. So that again, created a lot of unhappiness within the business community, saying, you know, how are we going to operate? We have to pay higher wages and then you're taxing us. A lot of these issues were really starting to percolate, you know, so the.

[A]

Overall costs are going up just for everybody.

[C]

For everybody. Exactly.

[A]

And it's not just higher taxes. For firms that depend on government work, the squeeze has been even sharper. The state has slashed its communications budget by half. And that's been bad news for companies like Kindi, a Jakarta PR and consulting business that relies on contracts from state owned enterprises. Erwan Saputra started the business three years ago.

[B]

Actually, 2025 is not easy for us. I think it is for most of Indonesian businessmen because there are several things that being challenges for us for the first is the government efficiency. Of course, the president starting his presidency with that narrative, government efficiency, it is not good for the business and also for the economy. In Indonesia. For example, like my business in communication, most of government, they cut the, or they decreased. The budget for communication is about 50% from the previous years. So it's, it's, of course it impacts greatly to the business.

[A]

Have you lost business as a new.

[B]

Player in this, in this business? We Got something positive for us. We can be more agile compared to the other bigger players. Two months ago I got clients also from the government insurance company and we got the project because our price three times more cheaper than the competitor.

[A]

Is it harder to get those contracts now than it was this time last year?

[B]

Yeah, yeah, last year. I have a recurring project and for the new contract for this year I have to cut the price by how much? Like about 20, 30%.

[A]

And that loss of income has left Irwan unable to hire new workers and it slowed down his plans to grow the business. His experiences aren't unique. Across Indonesia, businesses are feeling the squeeze. There's higher taxes, shrinking contracts and rising costs. All these are symptoms of a wider economy under strain. Layoffs are rising, forcing many people into the informal workforce and and university students are struggling to find jobs. Let's hear from our reporter Artu Destra Ajahn Rastri again. She's been speaking to young people at a jobs fair.

[D]

The hall of a hotel in Jakarta has been filled with job seekers since morning. The mostly young visitors flock to the booths of 44 companies taking part in this two day event. Their faces hopeful while they collect company's brochures. Some are carrying their CVs. A total of 400 job vacancies in this so called job fair are being contested by nearly a thousand of people, highlighting the fierce competition for employment. I currently improving myself so maybe I have a better chance to get a new job. I do several like online course. I feel like yes it is. It's difficult to find job because it's kind of competitive in it especially I have to improve myself so I can compete with other job seeker. I graduated in 2017 but my last job was in November 2024. I've applied to many places. I've been to a job fair and also applied through applications and email. It's a bit difficult because the competition is also quite high. And in terms of qualifications too, companies request candidates with experience.

[F]

I graduated from high school in 2017. I've been unemployed for almost four, five years. There are a lot of job seekers. I applied a lot and going to events like these job fairs, I have to be confident. Even though the competition is high for.

[A]

Students, the pressure is clear. Higher fees now and fewer opportunities once they graduate. And that frustration spilled into the streets in late summer. Anger over rising costs, shrinking opportunities, sweeping austerity measures and wealth inequality boiled over after Parliament's decision to grant MPs a housing allowance worth almost 10 times the minimum wage. A perk that became a symbol of political elites living far removed from the struggles of ordinary Indonesians. And at the core were students. Students whose protests carry real weight in a country where young people have often been the spark for change. The protests quickly spread beyond Jakarta. And on the 29th of August they turned violent after the death of a 21 year old delivery driver. Here's the BBC's Silvano Hajid.

[B]

One of protesters said that watch out.

[F]

Up there because police can throwing tear gas to the crowd over here. Protesters are here to expressing their solidarity.

[B]

To Afan Kuniawan, a taxi or motorbike taxi driver who has killed by police.

[F]

Last night during protests. As you can see behind me, people are still gathering in here. Police are still showing tear gas and I can still tear gas from here to the air. And others are throwing firecrackers over a few meters from here.

[A]

In response, President Prabowo cancelled a high profile trip to China to deal with the crisis at home. At the same time, he tried to calm public anger by cutting some of the perks for MPs including that controversial housing allowance. And after the death of the young delivery driver, he ordered what he said would be a quick and transparent investigation. It's been a year since the President entered Parliament for the first time as Head of state. He promised 8% growth by the end of his five year term. But the World bank and the IMF see something much lower, something closer to around 5%. With civil unrest on the streets and costs still rising, does that 8% target feel realistic now? It's a question our reporter Soranjara Tiwari put to Indonesia's Minister for Economic Affairs, Ayalanga Hatato.

[F]

Yeah, first we have an experience of growing beyond 7%. So even through a period of time, Indonesia know that the higher growth is achievement. But of course we have to see the global economics and the global trade. And Indonesia can only grow with a better geopolitical environment and situation. So even Indonesian government is realistic because next year our growth is expected to about 5.4%.

[D]

You talked about Indonesia's high growth rates in the past. But then there were very different industrial policies. There wasn't the influence of China, there was higher value jobs growth. What is Indonesia planning to do to create those quality jobs?

[F]

First, Indonesia in the past is relying on labour intensive industry. And at the moment Indonesia growth of export is from capital intensive, among others nickel and its downstreams. Ten years ago I think our export for nickel and downstream is only 3 billion. But last year, less than 10 years it's increased to 33 billion. The growth is very high. And then, of course, the other Indonesian economics is on digital. Indonesia is the largest digital economy in the ASEAN, almost 40%. So I think this is a lot of other opportunities in other sectors that the policy can be accelerated toward higher growth, not only linear, but exponential growth.

[A]

Minister Hutato says he's confident Indonesia can still hit the government's growth targets. But the economy's feeling the strain, and those ambitious promises of prosperity are now rubbing up against rising costs, deep budget cuts and violent protests. To steady things, the government's introduced a near billion dollar stimulus package, including food aid, cash for work schemes and tax breaks. But the question is whether those measures will be enough to make a real difference. That's all for this edition of Business Daily. I'm Sam Fenwick. The producer was Hannah Mul.