(Jakarta) — As Prabowo Subianto steps into office as Indonesia’s president, he faces a formidable set of challenges. With significant socio-economic issues inherited from Joko Widodo’s administration, Prabowo’s leadership will be tested by the complex and intertwined obstacles that have been years in the making. Here’s a look at the five principal challenges he will need to address, each underscored by quantitative data.
- Mounting National Debt
Indonesia’s national debt has reached worrying levels, having grown significantly over the past decade. As of the latest available data, Indonesia’s public debt stands at approximately 40% of its GDP, translating to around IDR 7,733 trillion (USD 528 billion). While this debt-to-GDP ratio may be moderate compared to some other emerging economies, the rapid rate of increase is concerning, especially given the high proportion of external debt. Nearly 30% of Indonesia’s debt is denominated in foreign currencies, making the country vulnerable to global economic shocks and currency depreciation.
This fiscal burden limits Prabowo’s room to maneuver in implementing expansive economic policies without adding further debt. Furthermore, with debt service costs rising, a large portion of the budget will inevitably be tied up, reducing the funds available for critical investments in infrastructure, education, and healthcare. Without a robust plan for managing and possibly restructuring Indonesia’s debt, the fiscal stress could hinder the nation’s economic development and Prabowo’s ambitions for national growth.
- High Unemployment and Poverty Rates
Indonesia’s unemployment rate has remained a persistent problem, with the latest figures showing an unemployment rate of around 5.5%, equating to roughly 7.5 million unemployed citizens. Additionally, the poverty rate, although reduced over the years, still affects a significant portion of the population. As of recent estimates, about 9.5% of Indonesians—or around 25 million people—live below the poverty line, defined as earning less than IDR 473,000 per month (USD 30).
This socio-economic backdrop presents a dual challenge for Prabowo. On one hand, he must create sufficient job opportunities to absorb the unemployed, particularly the youth, who make up a large portion of the jobless population. On the other hand, he faces the issue of lifting millions out of poverty, which will require targeted welfare policies, economic diversification, and an emphasis on job creation. These issues are compounded by regional disparities, with poverty rates significantly higher in rural and eastern parts of Indonesia compared to urban centers like Jakarta.
- Declining Quality of Education
Indonesia’s education system has long been criticized for its quality, with many experts arguing that it fails to equip students with the skills needed for a modern economy. In the latest PISA (Programme for International Student Assessment) results, Indonesia ranks in the bottom quartile among participating countries, with low scores in reading, mathematics, and science. This suggests that a large portion of Indonesia’s future workforce is entering the job market without the foundational skills necessary for higher-paying jobs.
Education funding remains insufficient, with Indonesia spending around 3.6% of its GDP on education, slightly below the global average. To improve outcomes, Prabowo’s administration would need to prioritize not only increased funding but also reforms that ensure the quality of instruction, teacher training, and school infrastructure. Enhancing educational outcomes is vital for Indonesia’s economic aspirations, as it will help to create a workforce that can compete on a global scale, particularly in sectors that require technical skills and digital literacy.
- Persistent Corruption
Corruption remains a pervasive issue in Indonesia, with the country ranking 110th out of 180 countries in Transparency International’s Corruption Perceptions Index. This poor ranking reflects a deep-seated issue that affects both the public and private sectors, discouraging foreign investment and reducing the efficiency of government operations. Corruption in Indonesia not only results in the misallocation of resources but also undermines trust in public institutions, an issue that Prabowo will have to confront head-on.
The public’s distrust of the judiciary, law enforcement, and public services due to corruption has fueled widespread discontent, often manifesting in protests and low voter turnout. Anti-corruption reforms will likely require political will, transparency initiatives, and possibly institutional restructuring. Prabowo’s administration may also need to consider increasing the independence of Indonesia’s Anti-Corruption Commission (KPK) to give it more authority in tackling high-level corruption cases that have traditionally enjoyed impunity.
- Alarming Deindustrialization and Shrinking Manufacturing Sector
One of the most concerning economic trends in Indonesia is deindustrialization—the decline of the manufacturing sector as a share of GDP and employment. Over the past decade, manufacturing has shrunk as other sectors, particularly services, have grown. Once the backbone of Indonesia’s economic rise, manufacturing now contributes to only around 19% of GDP, down from over 27% two decades ago. This trend is problematic as manufacturing has historically been a source of stable, well-paying jobs and a key driver of export revenue.
This deindustrialization trend poses two primary risks: it reduces employment opportunities for Indonesia’s large, young workforce, and it makes the economy more vulnerable to external shocks due to over-reliance on raw commodity exports. Additionally, Indonesia’s manufacturing sector has struggled with low productivity and lacks the advanced technology that could enhance its competitiveness. Without reversing this trend, Indonesia’s economic structure risks becoming overly reliant on low-value sectors, hindering its long-term growth prospects.
Prabowo will need to take decisive action to revitalize the manufacturing sector, potentially through incentives for industrial modernization, fostering an ecosystem that attracts both foreign and domestic investors to large-scale manufacturing projects, and implementing vocational training programs to build a skilled labor force.
