rabowo Subianto built his presidential campaign on promises of policy continuity, pledging to continue the economic reforms undertaken by his predecessor, Joko “Jokowi” Widodo. His landslide 58 percent victory on Feb. 14 supposedly would have eliminated investment uncertainty, drawn foreign capital and ended the wait and see approach among investors. But things did not unfold that way.
After the presidential election, foreign investors registered net sales of US$2.7 billion in Indonesian bonds during the first four months of the year, over concerns that Prabowo might enlarge the budget deficit beyond the 3 percent of gross domestic product legal threshold. Indonesian equities, theoretically the beneficiary of Prabowo’s pro-growth spending agenda, did not perform well either. The LQ45 index, a benchmark of Indonesia’s most liquid and blue-chip stocks, plunged by around 15 percent in the first half this year as the markets price in slower domestic economic growth ahead. Indonesia’s economic fortunes contrasted with India.
Annual gross domestic product (GDP) growth in the South Asian country has recently topped 8 percent—a number aspired by Prabowo during his presidential campaign. Its benchmark stock market Sensex has rallied by around 20 percent this year, and has doubled since 2020. The markets are voting for Indian Prime Minister Narendra Modi with their money.
India, like Indonesia, is an emerging country desperately in need of capital for development.
Thus Prabowo, like Modi, could start by reforming the capital markets. In his first cabinet decision, Modi set up a team to investigate black money. He subsequently pulled out high-nominal banknotes from circulation, effectively “formalizing” the informal economy and steering the black money into India’s financial system.
In the following year, banking liquidity improved, and income tax returns filed for individuals rose by 25 percent. This gave the much-needed liquidity boost for the private and public sectors, setting up a strong foundation for India’s infrastructure spending for years ahead.
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There are early signs that Prabowo, a son of Indonesia’s legendary economic minister Sumitro Djojohadikusumo, could actually be more pragmatic than anticipated. Many local analysts believe that Prabowo will preserve Indonesia’s fiscal prudence, after bond-market sell-offs earlier this year.
