Background
Indonesia is undergoing a major Strategic Transformation Under Prabowo Subianto, marked by assertive governance, military expansion, and centralized economic restructuring. The government is consolidating power, putting democratic institutions under strain, while the military gains a larger role in both defense and civil affairs. Economic policy is shifting away from liberalization, with new regulations and foreign exchange controls. Geopolitically, Indonesia is becoming more assertive, and Papua continues to be a hotspot for separatist unrest.
APAC Assistance assessed Indonesia’s Strategic Transformation Under Prabowo, including the military’s expanding footprint and the shifting business environment.
Strategic Transformation Under Prabowo
President Prabowo’s administration enjoys strong public support, with approval ratings above 80%, driven by economic stability and low inflation. However, major fiscal restructuring has seen drastic budget cuts—70% reductions in infrastructure and education—to fund the costly Free Nutritious Meals (MBG) program, which costs Rp 420 trillion (USD 25 billion) annually. While popular, the program faces criticism over inefficiency and corruption. Protests have emerged in Papua, where critics argue that funding should prioritize free education over subsidized meals.
In March, Indonesia’s House of Representatives passed a swift and controversial amendment to the TNI Law, expanding the military’s non-combat roles and allowing more active-duty officers to hold civilian posts. Initiated by President Prabowo, the changes aim to enhance efficiency and address new security threats but have sparked nationwide protests and concerns over authoritarian regression. The revised law increases non-combat operations to 16, including cyber defense and protecting citizens abroad, and raises the number of civilian agencies that can be led by active military officers from 10 to 14. It also extends retirement ages for TNI personnel. Critics fear the reforms reflect a broader trend toward militarization and weakened civilian oversight, especially with a possible revision to the 2002 Police Law on the horizon.
Indonesia is undergoing a major economic shift, driven by new laws and initiatives under President Prabowo. Key amendments to the Mining Law now favor firms investing in local processing, aiming to reduce raw exports and boost industrialization. On February 24, Prabowo launched the Danantara sovereign wealth fund, with USD 900 billion in assets and USD 20 billion earmarked for strategic projects. To fund these efforts, Rp 306 trillion (USD 18 billion) has been cut from ministry budgets, prompting protests. Tensions with the US have also emerged after a 32% tariff, leading Prabowo to ease local content rules and pledge USD 18 billion in increased US imports. These moves reflect an ambitious push for 8% growth amid growing global and domestic challenges.
Implications of Indonesia’s Strategic Transformation Under Prabowo
- Political Risks and Governance Outlook – Indonesia is experiencing a shift toward political centralization, with reduced regional autonomy and weakened direct regional elections. The reallocation of fiscal resources further consolidates executive power, raising medium- to long-term political and governance risks.
- Militarization and Security Concerns – The amendment to Law No. 34/2004 marks a major institutional shift, formally expanding the military’s role in civilian affairs. This revival of “dwifungsi”-like dynamics embeds the TNI in governance, potentially weakening technocratic leadership and introducing military influence into policymaking.
- Business Climate and Economic Prospects – Danantara and Indonesia’s state-led industrialization agenda are transforming the investment landscape, creating opportunities in processing, renewables, and infrastructure. However, the shift toward central planning limits private-sector autonomy and demands alignment with state priorities. The amended Mining Law reinforces this direction by curbing raw exports and tightening government control over the resource sector.