Prabowo Bends to the Will of the Markets
Prabowo retreated from two policies that alarmed investors. But restoring market confidence will require more than a tactical compromise.
Indonesian President Prabowo Subianto has yielded to market expectations and adjusted his policies. His government faced a precarious funding situation that could only be averted by a shift in direction. This willingness to compromise was evident in his August 14 state address and the 2027 draft budget proposal. Two key concessions were made during this process.
The first pertained to the status of Bank Indonesia. Prabowo refrained from incorporating the central bank into the cabinet structure, a move that markets had anticipated following the resignation of BI governor Perry Warjiyo in July. Strictly speaking, BI maintains its independence in setting monetary policy, which is an essential factor for investors.
The central bank's autonomy ensures that monetary policy remains focused on managing inflation and currency stability, rather than being influenced by the president's desire for rapid economic growth, regardless of the potential repercussions. Without this independence, there would be a constant risk that BI could be compelled to finance the government's budget deficit through money creation, a scenario that would have raised significant market concerns.
The second concession involved Danantara Sumberdaya Indonesia (DSI). Prabowo abandoned the plan to centralize the export of natural resource commodities through the company. In his words, "I repeat: it is the processing, not that a single company will control the commodities and export them. No." Therefore, DSI would solely function as a processing and verification center, rather than acting as a trader or exclusive exporter.
Written by urgent.news from Tempo.co English's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
