Commentary by Wayne Forrest

President Prabowo began his Presidency mostly traveling outside of Indonesia, signaling the importance of repositioning the world’s fourth largest nation in front of its major sources of trade and investment. On November 8, only 2 weeks after his inauguration the President headed first to China to meet Xi Jinping and then flew to Washington to meet President Biden. He also attended the APEC Summit in Peru and the G20 in Brazil, ending his sojourn with a visit to the United Kingdom.

The contrast between his reception in China versus the US was stark: the Chinese showered Prabowo and his considerable business delegation with “high ceremony”, including the trappings of a state visit as well as $10 billion of new investment pledges, whereas President Biden held a perfectly acceptable and friendly bilateral discussion in the Oval Office but offered few if any tangible deliverables. For example, no progress seems to have been made on something Indonesia clearly desires at minimal US cost, a critical minerals agreement. Prabowo’s attempt to meet President-elect Trump failed; but they had a friendly phone conversation, recorded and circulated, in which Trump complimented Prabowo’s command of English. As typically happens with Presidential visits, it fell to the US business community to show where the real center of gravity rests in the relationship. But, although the vibes in the meeting between US executives and Prabowo were strong and enthusiastic, the participants were a small group of “usual suspects”, companies already strongly committed to Indonesia. Serious planning for Prabowo’s overseas trips may have only begun after the inauguration; the meeting with executives was arranged at the last minute. With more time and planning, a much larger array of companies could have been assembled.

Prabowo’s visit to the US underlined a major recommendation of the Asia Foundation’s report “Critical Issues Facing the US in SEA in 2025”, discussed during our 12/9 event: the US needs a stronger trade engagement agenda with the region, including Indonesia. The panel’s consensus is that our military relationship is strongest.

Prabowo’s statements and remarks at all of his bilateral and multilateral events focused on key global issues: climate change, food security, Middle East, Ukraine, freedom of navigation. He continues to follow Indonesia’s traditional non-aligned status but shares US views on a two-state solution to the Israel/Palestine conflict, a commitment to uphold principles of sovereignty and border integrity (Ukraine), and freedom of navigation (South China Sea). One hiccup that arose during Prabowo’s trip occurred in China, where the new President signed Indonesia on to a statement to jointly develop an oil/gas deposit in border region claimed by China but within the Indonesia’s exclusive economic zone. Reports indicate that the foreign ministry’s advice to alter or abandon the statement was either ignored or overlooked. White House staffers were already prepared to question whether Indonesia had changed its views on China’s 9 dash line when Prabowo’s delegation arrived in the US. Perhaps it was inexperience or just a willingness to please a generous host. Since the trip Indonesia has reiterated its position of not recognizing China’s claims.

Prabowo clearly had success projecting Indonesia’s intention to be a meaningful and responsible international player. Tamalia Alisjahbana, writing for The Independent Observer, an Indonesian publication, remarked: “Prabowo is the first Indonesian president since Soekarno, so determined to have the nation use Indonesia’s soft power, natural assets, and inclusive foreign policy to play a significant role in foreign affairs.” The Economist strongly chastised Prabowo’s “kow tows” to Chinese claims over South China Seas resources, seeing this as a weakness that belied the strongman image he projected during his 3 Presidential campaigns. The overall consensus is with Alisjahbana’s position, although Tempo, criticized Prabowo for telling the Chinese, the plight of its Muslim population (Uighars) was a domestic issue.

Back home Prabowo has focused on key elements of his domestic agenda, food and energy security and financing his free meal program for kids and young mothers. He has run into budget headwinds and a slowing economy. He’s been forced to scale back the meal program by a third and back away from a scheduled VAT increase from 11 to 12%. Finance Minister Sri Mulyani Indrawati is considering leveraging unspent “development finance” obtained via various financing mechanisms for loans to increase spending without changing the debt to GDP ratio or adding to the budget. A new entity Danantara has been created as a basket of state-owned enterprises that could similarly attract funding. These would be creative, but untried techniques in development finance that are already raising questions. Indonesia’s business community sees the VAT increase adding another burden on consumers whose spending is the major component of the country’s economy. Others may wonder how the assets in Danantara—which include many indebted SOE’s with opaque balance sheets such as Pertamina and PLN—will be accounted for. Can this organization actually borrow independently, since its constituent assets are owned by the Ministry of Finance. Would Parliament go along with schemes where it is not consulted. No firm answers yet but things may clarify in the months ahead. Prabowo has had some good days, mostly abroad, now he and his enlarged Cabinet, some who don’t have offices yet, have to deliver on their promises.