Indonesia has lengthy straddled the line between passion and excess. Although it has a lot of potential, governmental incompetence has previously caused economic crises.  ,
The country is in a collision course with economic unrest thanks to President Prabowo Subianto’s aggressive efforts to establish Danantara, a sovereign wealth fund allegedly built after Singapore’s Temasek.
Alarm bells are ringing as a result of the recent decline of Indonesia’s property industry and the temporary suspension of investing. Who is it really that Danantara’s bell really tannoys? The Indonesia itself is the truth, which is unsettling.
To attract new foreign investment, improve Indonesia’s competitiveness, and propel Indonesia’s transformation into a regional economic powerhouse, Danantara was intended to be Prabowo’s financial masterstroke.
The implementation has been shoddy, but the perspective is great. Danantara is built on a risky redistribution of Indonesia’s federal resources, in contrast to Temasek in Singapore or Khazanah in Malaysia, which both prospered thanks to watchful investment and surplus management.  ,
The government cut funding for essential public services, including a 24 % reduction in funding for elementary education, a 39 % reduction in funding for higher education, a 20 % reduction in funding for healthcare, and crucially, a 73 % reduction in funding for public works and infrastructure projects.
These breaks have not been viewed as proper in an market that is already struggling with global challenges. Instead, they have stifled public opinion, created worries about the economy, and sparked a worried investment flight.
Trust is a key ingredient for markets to live. Capital flight begins the time investors begin to doubt a government’s ability to manage its market properly. That is exactly what is taking place in Jakarta.
In intraday trading on Tuesday, the Jakarta Composite Index (JCI) dropped 7.1 % and dropped nearly 4 %, reaching its lowest level in four years. Trading was suspended, an unprecedented step not seen since the Covid-19 pandemic’s financial panic.  ,
The ringgit depreciated by 2 % against the US dollars at the same time, indicating growing concerns about capital flows. For foreign investors, Danantara, which was once viewed as a bold move, now appears to be a ringing economic time bomb.
Prabowo’s nationalist spending plan is at the heart of Indonesia’s growing financial instability. His administration has promised optimistic cultural initiatives, including a US$ 28 billion complimentary meal initiative for students.  ,
Although heroic in intent, Danantara’s enormous fiscal demands have combined to create what is being viewed as an untenable fiscal burden.  ,
Indonesia has long taken pride in keeping its budget deficit below 3 % of GDP. Financial analysts and investors are unsure of the government’s plan to keep the deficit at 2.53 %, despite the government’s assurances.  ,
The statistics stop adding up when a government cuts crucial solutions while increasing politically motivated investing. Prabowo’s state, however, continues to be dejected, doubling down on its fiscal approach rather than changing its program.
No accountability, no accountability.
Danantara’s lack of accountability and accountability is one of its biggest problems. In contrast to Temasek and Khazanah, which have independent boards and strict monitoring, Danantara is under the direct command of Prabowo.  ,
Investors have been frightened by this structure because they fear the bank may turn into a conduit for democratic favoritism rather than a clear-eyed economic stimulus. Worse, Indonesia’s regional accountants have been exempt from Danantara’s monitoring, raising concerns that trillions could be manipulated or worse.  ,
It takes a while for cracks to start appearing when the base of an economic establishment is built on privacy rather than confidence. The rupiah is also becoming more prone to physical shocks as the money leaves Indonesia. A weakening currency results in higher import costs, rising prices, and more challenging customer service.
Indonesia may experience a full-scale dollar issue, which is eerily similar to the 1997-98 Asian financial crisis, when the ringgit collapsed, prices skyrocketed, and the nation was finally forced into an IMF loan.
The change between today and today is that Indonesia’s bankers are stronger and its economy is more developed. No economy, however resilient, can tolerate irresponsible macroeconomic policies and investment stress continuously.
Leading academics and academics have expressed their reservations about Prabowo’s financial strategies.
Former Indian finance minister Dr. Chatib Basri, a respected economist and former head of the country, has argued that fundamental changes are necessary to meet Indonesia’s very ambitious 8 % GDP growth target given limited fiscal space and large market interest rates for government securities.  ,
Additionally, analysts have observed similarities between Danantara and other sovereign wealth funds, warning that Indonesia runs the risk of developing an organization that may turn into a liability rather than an advantage without proper management.  ,
Sri Mulyani Indrawati, the country’s foremost advocate of macroeconomic prudence, is in direct opposition to Prabowo’s wide plans.  ,
The government’s spending plans are straining the nation’s money, despite her efforts to keep the deficit under 3 % of GDP. Investors have been further alarmed by speculation about her probable departure.
Running out of time
Is it possible that Indonesia is quickly running out of time? His government may be wise to take four immediate actions if Prabowo wants to prevent a financial disaster.
Firstly, regain buyer trust. Jokowi should immediately assure the markets that Danantara is under separate control. That would require allowing federal auditors to review the firm’s management and prepare a report on their findings as soon as possible.
Second, balance the finances. That would require redistributing resources to necessary services like infrastructure, care, and education.  ,
Cutting these industries to finance Danantara has been a strategic error that has probably weakened cultural foundations and sparked economic anxiety. With an impoverished labor and crumbling public services, a government cannot create long-term prosperity.
Third, improve management and accountability. The state needs to change its management structure to make Danantara operate more similarly to Temasek in Singapore or Government Pension Fund Global in Norway. e.g., it is not a vehicle for social favoritism as an establishment run by professionals. Without accountability, owners will continue to flee.  ,
Lastly, Prabowo must maintain the rupeah in addition to the methods listed above. A weakening dirhams could lead to a full-fledged currency crisis for Indonesia.  ,
In order to reduce inflationary forces while restoring business confidence in the security of the rupee, the government may work with Bank Indonesia to arrange with them.
Indonesia also has a chance to make a course correction before it is too later. However, the screen is rapidly closing.
If Prabowo goes down his present risky course of putting short-term political objectives before long-term financial stability, he runs the risk of ruining two decades of progress in creating a solid, investor-friendly Indonesia and, in the process, destroying the middle class.