Indonesia’s Next Leader Targets World-Beating 8% Plus Growth

Grace Sihombing and Faris Mokhtar
·3 min read
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(Bloomberg) -- Indonesia’s President-elect Prabowo Subianto is setting his sights on becoming the world’s fastest-growing economy early in his term, with more aggressive spending to achieve food and energy self-sufficiency.

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“I am very confident of achieving 8%” gross domestic product growth in the next two to three years and “determined to go beyond” that, Prabowo, who’s set to start his five-year term in October, told Bloomberg Television’s Haslinda Amin at the Qatar Economic Forum on Wednesday.

Prabowo’s goal, which is more ambitious than the 7% that has eluded incumbent President Joko Widodo after a decade in power, will make Indonesia the world’s fastest-growing major economy — a title currently held by India. Southeast Asia’s largest economy has only expanded by an average of 5% over the last 20 years despite major legal reforms to boost investment and a boom in minerals downstreaming.

Indonesia can be “more daring” with government spending so it can pursue priority programs, Prabowo said. He also called a legal limit capping the budget deficit at 3% of GDP as “arbitrary.”

“Not many countries hold to that, but we have a tradition of prudent fiscal management,” he said. “We have one of the lowest debt-to-GDP figure in the world, so now I think it is time to be more daring within a good governance.”

Prabowo’s pronouncements could fan concerns among investors that he could expand debt in pursuit of economic growth. Foreign funds have sold off a net of $2.1 billion in Indonesian bonds so far this year, partly amid fears of a budget blowout.

His campaign has focused on reducing poverty and improving child nutrition to help unlock more benefits from the country’s massive, young population. One of his key pledges is to give free lunches and milk to more than 80 million students, which he also expects to create employment for women and small businesses. The program could cost as much as 460 trillion rupiah ($28.7 billion) a year, more than the entire 2023 budget deficit.

The program can be funded within the budget deficit cap by cutting down on waste and non-essential spending, Prabowo said. He earlier promised to increase tax revenue to 14%-16% of GDP to fund his spending promises while upholding fiscal discipline.

The nation’s next leader will also be relying on the state budget to help shoulder the costs of constructing the $34-billion new capital city of Nusantara, which should also bolster GDP growth. Domestic funds will be the main driver of the project, with foreign investments to follow after, he said.

Food Resilience

Minerals downstreaming — wherein more raw commodities are refined locally before being exported — is important to industrialize, though Prabowo acknowledged that it would take years to achieve that. “What would be the growth drivers in the first few years would be our concentration on agriculture,” food production and energy self-sufficiency, he said.

“We want to produce our diesel from palm oil. This will be a very strong growth driver,” he said. Indonesia imports $20 billion worth of diesel, as he touted the huge savings that would result from the switch to biofuels. He also underlined agriculture as an area to propel growth.

The government of the State of Qatar is the underwriter of the QEF, powered by Bloomberg.

--With assistance from Eko Listiyorini and Norman Harsono.

(Updates throughout with comments on fiscal deficit)

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