Index trend
Previous Quarterly Editions
Expropriation risk: 60 60 60 60 ► Political violence risk:51 51 51 51 ►Terrorism risk:57 53 53 53 ►Exchange transfer and trade sanction risk: 44 44 44 44 ►Sovereign default risk:55 47 47 47 ►
Overall Risk Temperature: 52 (Medium) TREND ►
Special topic: Relationship with the 'global rules-based order'
Indonesia since independence from the Netherlands has sought to avoid becoming involved in great power conflicts while supporting international institutions such as the United Nations that promote and protect the interests of smaller countries. This was reflected in the phrase “rowing between two reefs,” which was how Indonesia’s first vice president, Mohammad Hatta, defined the country’s foreign policy in a speech in 1948.
Efforts to adhere to Hatta’s foundational philosophy of democracy and self-determination have often proved contradictory and have even provided cover for protracted periods of authoritarian and even violent rule. Its guiding principle, however, continues to underpin Indonesia’s domestic and international priorities and policies. The 21st century had been largely marked by a steady, if contested and uneven, deepening and expanded role for civil society and its attendant benefits; however, concerns are growing that this momentum may be slowing or potentially slipping into reverse.
Defense Minister Prabowo Subianto was confirmed as Indonesia’s next president on March 20, having won 59% of the votes cast in the country’s February 14 general elections. Many view it as a continuation of his predecessor Joko “Jokowi” Widodo’s influence, since Jokowi’s son, Gibran Rakabuming Raka, is designated as vice president. There is no guarantee, however, that this arrangement will survive Prabowo’s inauguration in October.
Prabowo is associated with the 1967 – 1998 Suharto dictatorship. His past role as a senior military officer implicated in suppressing domestic opposition to Suharto’s regime and East Timor’s independence aspirations casts a shadow over his presidency. He has been accused of historical human rights abuses in the past century, which resulted in him being barred for entering the U.S.
None of this implies a challenge to the rules-based international order in terms of assertive or energetic foreign policy, but if the new government takes a repressive turn, this would damage ties with Western democracies and contribute to the erosion of the liberal democratic norms they promote.
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Prabowo’s election victory has raised concerns about his economic priorities, given the former army general’s long association with overtly nationalistic and authoritarian sentiments and actions; however, Prabowo has pledged to continue with Jokowi’s economic policies. This includes prioritizing the domestic processing of the country’s mineral commodities rather than exporting them in their raw or primary state. There is no reason to doubt that this policy will change, despite being challenged at the World Trade Organization and amid increased Chinese investment in the country’s key nickel mining and production sector.
The 2024 election campaign and polling passed without any serious political unrest, although there were minor protests once it became clear that Prabowo had won. Further protests are likely during the interregnum before Prabowo assumes the presidency in October 2024, although attempts to “rebrand” him has an avuncular elder statesman appear to have successfully obscured his past in the eyes of younger Indonesians. A legal challenge to the conduct of the polls by the losing contenders may also result in protests in Jakarta and other major cities.
No serious acts of terrorism were recorded in Indonesia in 2023, despite an increase in the number of alleged plots by extremist groups or individuals being detected by the police and security forces. Nevertheless, the country’s main terrorist groups continue to maintain nascent ideological and operational structures and capabilities, notably Jamaah Ansharut Daulah (the main pro-Islamic State group), the Jemaah Islamiyah (Indonesia’s largest pro-Al-Qaeda group) and the Darul Islam (the country’s oldest terrorist organization). They appear to have opted for resilience over action while they await a catalyst or precursor that could generate support for direct action against the state or local and foreign commercial interests.
Indonesia’s foreign exchange positions are relatively strong. Foreign exchange reserves fell from $145 billion in January to $10 billion in March, primarily due to debt repayments. There are no international disputes that suggest trade sanctions may be imposed on or by Indonesia in the near future. There are unlikely to be any substantive developments that directly affect foreign commercial interests regarding government policy in the near future, particularly in the period before Prabowo is officially inaugurated in October.
Indonesia’s fiscal position is relatively strong. The country’s debt-to-GDP ratio of 39.03% for 2023, which is forecast to ease to 38.62% in 2024, remains well within the legally mandated 60% ceiling. Prabowo said during his election campaign that this ceiling could be lowered, without offering further details. Overall, Indonesia recorded a 347.6 trillion rupiah fiscal deficit in 2023, or 2.35% of GDP, the smallest in 12 years. The government forecasts a 2.29% fiscal deficit for this year, based on $216 billion budget expenditure. Prabowo indicated he could raise the budget deficit cap, currently set by law at 3% of GDP, but he also aims to raise the tax-to-GDP ratio from 10% to 16%.
