Making Sense of Indonesia’s Doom Loop: Opportunity Amid Uncertainty
What Investors Need to Know about Indonesia Under Prabowo
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September 02, 2026
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President Prabowo Subianto’s administration is sending contrasting signals about Indonesia’s economic and political landscape, which has made long-term planning difficult for investors operating in the former emerging-market favourite.
On one hand, Indonesia has been caught in a spiral of negative economic developments, a continuous financial crisis that some media outlets have coined a “doom loop.” The plummeting rupiah — which has fallen more than 7% against the U.S. dollar in 2026, making it Asia’s worst-performing currency — and negative outlook reports from major rating agencies, Fitch and Moody’s, have prompted “Sell Indonesia” calls.1, 2, 3 Analysts have noted that these are signals of weakening investor confidence in the country.4, 5 Yet at the same time, macroeconomic and investment indicators remain positive: the International Monetary Fund projects Indonesia’s GDP growth to remain around 5% over the medium term and its fiscal deficit (as a percentage of GDP) to be at 2.9% (compared to 3.3% in Malaysia and 3.7% in the Philippines), while 1Q26 data from Indonesia’s Ministry of Investment shows that foreign direct investment has increased by 8.5% year-on-year.6, 7, 8
Meanwhile on the political front, Indonesia’s government is strong and centralised. The Prabowo administration has consolidated its power rapidly since October 2024. It controls 80% of parliamentary seats through the 14-party Onward Indonesia Coalition Plus (‘KIM Plus’) and has strengthened executive power by co-opting competing political factions as well as appointing loyalists to Prabowo’s “Red and White Cabinet,” which has more than 100 members and was named in reference to the colours of Indonesia’ national flag to symbolize unity and patriotism.9, 10, 11 Political observers have also noted former military general Prabowo’s top-down leadership instilling military-style discipline, including through a cabinet retreat at a military academy in Central Java in October 2024 where ministers donned military fatigues and participated in marching exercises.12, 13 This centralised power structure has enabled the administration to swiftly enact policies aligned with the President’s priorities, which are centred around economic nationalism, food and energy security, social welfare expansion and a stronger state role in economic development.14
While the President’s agenda and policy direction have been made clear, the administration has been criticised by some corporates and in the media for its lack of policy communication and consultation.15 Consequently, the administration has had to pivot or backtrack policy decisions in response to adverse market reactions. Notably, in April 2026, the central government announced that it would end electric vehicle (‘EV’) tax breaks — a move that would severely impact EV manufacturers who have invested heavily in Indonesia. Three weeks later, the government announced a U-turn in response to pressure from manufacturers and consumers over slower EV adoption.16 On 20 May 2026, President Prabowo announced the creation of a new state-owned enterprise (‘SOE’), PT Danantara Sumberdaya Indonesia (‘DSI’), to consolidate commodities exports, leading to strong market reactions: the Jakarta Composites Index fell by 3.54% on 21 May, and buyers and exporters voiced concerns to the Trade Ministry.17, 18 By mid-June, the government clarified that the SOE would instead impose tighter monitoring of exports to prevent “understating shipment values and evading taxes.”19
These abrupt policy changes have generated regulatory uncertainty and investor concerns about the lack of policy predictability, which have echoed throughout the investment landscape. Nonetheless, Indonesia’s investment appeal remains clear: it is projected to become the world’s seventh largest economy by 2030, and with the world’s fourth largest population, offers a substantial and growing market for global businesses.20, 21, 22, 23 What has changed is the need for investors to reprice the risks of operating in Indonesia, understand the key priorities of the government (and where their businesses fit in), and understand the mechanics of political decision-making.
Understanding Indonesia’s Emerging Risk Landscape
President Prabowo’s command-style leadership is set to continue through at least 2029, and he is determined to execute his policy agenda of economic nationalism and state-driven growth through adaptive policymaking shaped by actors’ behaviours, a departure from traditional consultative policymaking. His inner circle – comprised of military figures, political loyalists, and Cabinet Secretary Teddy Indra Wijaya (widely perceived as a key gatekeeper to Prabowo) – exercises significant informal influence over policy direction.
Investors operating in this environment will therefore need to be prepared for ongoing policy changes, particularly in strategic sectors such as mining, palm oil and metals, where the risk is disproportionately higher due to greater state intervention.
The extractive sector, for example, is a key focus for President Prabowo, especially in terms of how value is captured and shared. At minimum, investors should anticipate sustained scrutiny and state-driven changes to ownership structures, concession terms and operating obligations, alongside shifts in pricing, payment-routing and foreign exchange requirements. Contracts may remain in force while their terms are reset, with consequences for bankability, covenant compliance, hedging and supply certainty.
Against this backdrop, investors should position themselves for adaptability rather than assume a stable operating environment:
- Invest in intelligence: Continuously monitor sector-specific regulatory developments to prevent being caught by surprise by policy changes. Given that such decisions are likely to be subject to adaptive policymaking, it is critical to monitor these changes closely and constantly.
- More robust stakeholder mapping: Establish a structured government and stakeholder engagement programme to maintain visibility on policy direction and preempt scrutiny before it escalates. This would involve mapping, building and maintaining relationships across government (both regulatory and community counterparts), and anticipating policy shifts.
- Enterprise risk management: Developing and maintaining a comprehensive risk mitigation strategy underpinned by policies (including crisis management and business continuity plans), standard operating procedures, metrics and monitoring structures.
The Case for Indonesia is Still Strong
Indonesia remains one of Asia’s most attractive long-term growth markets, with strong demographics, a large domestic market and favourable economic fundamentals. Yet success under the current administration will depend on more than identifying commercial opportunities. As the state takes a more active role in shaping economic outcomes and policymaking becomes increasingly adaptive, political and regulatory intelligence will become a core competitive advantage. Investors who can anticipate policy developments, understand how decisions are made and engage strategically with stakeholders, will be primed to capture Indonesia’s long-term growth potential.
Footnotes:
1: “Indonesian rupiah falls to record low against US dollar”, France24 (4 June 2026).
2: Gayatri Suroyo and Stefanno Sulaiman, “Fitch cuts Indonesia credit rating outlook to negative”, Reuters (4 March 2026).
3: Ruth Carson, Abhishek Vishnoi, and Matthew Burgess, “‘Sell Indonesia’ sweeps trading desks as Prabowo tightens grip”, The Straits Times (5 June 2026).
4: Grace Sihombing, Claire Jiao, and Norman Harsono, “Indonesia’s crisis of confidence as markets decode Prabowo”, The Business Times (7 June 2026).
5: Kharishma Vaswani, “Prabowonomics is giving Indonesia a bad rep,” Bloomberg (27 July 2026).
6: International Monetary Fund, “Indonesia”, IMF DataMapper (accessed 14 August 2026).
7: Statista Research Department, “Budget balance in relation to GDP in Southeast Asia from 2000 to 2031, by selected country”, Statista (13 May 2026).
8: Ruth Dea Juwita, “Investment growth cools as global turmoil hurts investor appetite”, Jakarta Post (24 April 2026).
9: Niniek Karmini, “New President Subianto swears in Indonesia’ largest Cabinet since 1966, with 109 members”, AP News (21 October 2024).
10: Jefferson Ng, “Why Prabowo needs to strengthen information management in his administration”, East Asia Forum (14 January 2026).
11: Max Lane, “Power and Opposition Under Prabowo’s Political Cartel”, Fulcrum (23 June 2025).
12: Achmad Ibrahim and Edna Tarigan, “Indonesia’s new President and ministers begin a military-style retreat which includes morning drills”, Associated Press (25 October 2024).
13: Yerica Lai, “Prabowo introduces ‘Military Way’ to cabinet in Magelang bootcamp”, The Jakarta Post (26 October 2024).
14: “Prabowo outlines eight national priorities in 2027 Draft State Budget”, Antara (14 August 2026).
15: Eka Yudha Saputra, “Expert Says Communication Gap Within Cabinet a Major Issue in Prabowo-Gibran’s First Year”, Tempo English (24 October 2025).
16: Ruth Dea Juwita, “Govt backtracks on EV taxation as adoption rises”, The Jakarta Post (25 April 2026).
17: Grace Ghandi, “JCI Falls to 6,094.94 on Energy Sector Losses”, Tempo English (21 May 2026).
18: Ismi Damayanti, and Rezha Hadyan, “Indonesian commodity exporters flag myriad hurdles in state monopoly push”, Nikkei Asia (22 May 2026).
19: Wahyudi Soeriaatmadja, “Indonesia to scale back commodity export centralisation, tighten monitoring: Sources”, The Straits Times (11 June 2026).
20: New Zealand Ministry of Foreign Affairs and Trade, “Indonesia’s Economic Plans”, New Zealand Foreign Affairs and Trade (March 2025).
21: HSBC, “Indonesia: A Rising Global Economy That’s Open For Business”, HSBC (19 May 2023).
22: “Overview: Indonesia”, World Bank (October 20, 2023).
23: Kevin Daly and Tadas Gedminas, “Global Economics Paper: The Path to 2075 — Slower Global Growth, But Convergence Remains Intact”, Goldman Sachs Economics Research (6 December 2022).
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Published
September 02, 2026
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Senior Managing Director, Head of Asia Business Intelligence
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