Bending, not breaking? Indonesia’s resilience paradox

Indonesia's economic model is becoming increasingly centralized, which may be eroding the shock absorbers that have historically contributed to the country's resilience. Despite earning a reputation for resilience, the country's growth has remained roughly stable at around 5 percent over the past decade. Strong institutions, a large domestic market, and flexibility in absorbing shocks have all played a role in this resilience.

However, under President Prabowo Subianto, more economic resources and decision-making are being concentrated within the state. Economists Jenny Gordon and Firman Witoelar argue that this recentralization, coupled with an expanding state role in markets and weakening fiscal, monetary, and accountability guardrails, is more likely to increase Indonesia's vulnerability to external shocks than decrease it.

This exposure is already being tested, with the country recording its first trade deficit since 2020 and the Bank Indonesia raising interest rates to defend the rupiah. Despite starting from a position of strength, with a ranking of fifth in future resources by the Lowy Institute's Asia Power Index 2025, Indonesia's deep pockets may not be enough to absorb shocks if the pressure is placed on the state.

The cost of each shock, in terms of which buffers are spent and what capacity remains for the next shock, ultimately depends on how much adjustment runs through the state and whether the state has the capacity to bear it.