First glance

Indonesia’s post-election balancing act

Indonesia must reconcile its aim to be a leading Asian power with its current over-reliance on China

Publishing date
19 February 2024

Prabowo Subianto’s victory in Indonesia’s elections on 14 February is much more than a domestic issue. It is a further sign of a global shift towards more nationalist leaders and could prove significant in terms of Indonesia’s attempt to emerge as a leading Asian power. 

Prabowo takes over at a time when, because of the growing strategic competition between the United States and China, countries are being pushed to take sides. Only very few are large enough to create their own sphere of influence. India is one, with President Modi heading towards a third mandate (India will also hold elections in 2024) and with increasing competition with China for leadership of the Global South. The question for Prabowo – who has become president after several previous attempts and whose discourse has been more nationalistic and hawkish than outgoing President Jokowi – will be whether Indonesia, the fourth most-populous country in the world, can become a relevant middle power, contributing to multipolarity instead of a Cold War-type bipolarity.

Prabowo will need to deliver on two fronts: economic growth and foreign policy. He will need to maintain high growth rates to create a middle class. Under Jokowi, growth averaged 5% per year. Keeping it at that rate or raising it (Prabowo has promised 7%) is essential for Indonesia to avoid the middle-income trap – a slowing of growth as a country becomes richer – which neighbouring powers, such as Thailand, seem to have fallen into.

To that end, Indonesia must stay open to foreign direct investment, which surged to a record high of $47 billion in 2023. For this, retaining the policies introduced by the globally-renowned outgoing finance minister, Sri Mulyani Indrawati, will be essential. Indonesia’s new ‘El Dorado’, nickel, of which Indonesia has 42% of known global reserves, should provide tailwinds, notwithstanding nickel’s plummeting price (80% down since early 2022). Indonesia also needs to move beyond providing commodities to the world – and increasingly to China – to becoming an industrial power that can refine nickel and produce electric vehicles.

For this, Indonesia needs technological transfer – and fast because overcapacity in electric vehicles is looming in China. An issue that should be tackled is Jokowi’s legacy of economic dependence on China, which boiled down to Indonesia exporting commodities while importing most of its intermediate and final goods from China.

Jokowi’s foreign policy legacy is more mixed. Although it held the ASEAN presidency in 2023, Indonesia has not emerged as the group’s de-facto leader – which would seem natural given that Indonesia is so much larger than the other nine members. Indonesia’s G20 presidency in 2022, meanwhile, was tainted by the war in Ukraine and the radical differences between the West and Russia (supported by China) on the role of the G20.

During his presidential campaign, Prabowo was clear on his intention to bring Indonesia to the world stage as a key Asian power. The irony, though, is that his intentions run counter to China’s interests. China wants to continue to dominate Southeast Asia, economically and politically. In other words, Prabowo may soon realise that Indonesia’s economic and foreign policy objectives may not be aligned with those of China. Indonesia’s economic growth is somewhat dependent on China. However, if Indonesia wants to achieve its foreign policy objectives of becoming a greater economic power internationally, then it will need to reduce ties with China.

Jokowi seemed to cautiously open the door to a less pro-China policy, in order to support Indonesia’s middle-power ambitions. First, Indonesia under Jokowi did not follow other major emerging economies (in particular Saudi Arabia) and join the expansion of the BRICS group. Indonesia did however, in June 2023, apply for membership of the Organisation for Economic Co-operation and Development.

The latter should be positive for the European Union’s vision of a closer economic partnership with Indonesia as a key ASEAN power. This could even include the conclusion of negotiations on a Comprehensive Economic Partnership Agreement, which went to one more round in December 2023 after being launched in 2016. Still, major hurdles remain in relation to market access and green policies, including the EU’s deforestation legislation. Prabowo has not been vocal on climate-related policies, which does not bode well for further negotiations, but the need to diversify away from excessive dependence on China may weigh more in his strategy.

All in all, Prabowo can be expected to follow Jokowi on economic policies, while becoming more outspoken on Indonesia’s global role – meaning that a change will be needed in Indonesia’s now very-large economic dependence on China. The buzzword may be diversification (probably not de-risking yet), justified by a more nationalistic agenda, which may create some impetus in the ongoing trade and investment negotiations with the EU. More generally, striking the right balance between the economy and foreign-policy ambitions will determine whether Prabowo is successful as Indonesia’s president.  

About the authors

  • Alicia García-Herrero

    Alicia García Herrero is a Senior fellow at Bruegel.

    She is the Chief Economist for Asia Pacific at French investment bank Natixis, based in Hong Kong and is an independent Board Member of AGEAS insurance group. Alicia also serves as a non-resident Senior fellow at the East Asian Institute (EAI) of the National University Singapore (NUS). Alicia is also Adjunct Professor at the Hong Kong University of Science and Technology (HKUST). Finally, Alicia is a Member of the Council of the Focused Ultrasound Foundation (FUF), a Member of the Board of the Center for Asia-Pacific Resilience and Innovation (CAPRI), a member of the Council of Advisors on Economic Affairs to the Spanish Government, a member of the Advisory Board of the Berlin-based Mercator Institute for China Studies (MERICS) and an advisor to the Hong Kong Monetary Authority’s research arm (HKIMR).

    In previous years, Alicia held the following positions: Chief Economist for Emerging Markets at Banco Bilbao Vizcaya Argentaria (BBVA), Member of the Asian Research Program at the Bank of International Settlements (BIS), Head of the International Economy Division of the Bank of Spain, Member of the Counsel to the Executive Board of the European Central Bank, Head of Emerging Economies at the Research Department at Banco Santander, and Economist at the International Monetary Fund. As regards her academic career, Alicia has served as visiting Professor at John Hopkins University (SAIS program), China Europe International Business School (CEIBS) and Carlos III University. 

    Alicia holds a PhD in Economics from George Washington University and has published extensively in refereed journals and books (see her publications in ResearchGate, Google Scholar, SSRN or REPEC). Alicia is very active in international media (such as BBC, Bloomberg, CNBC  and CNN) as well as social media (LinkedIn and Twitter). As a recognition of her thought leadership, Alicia was included in the TOP Voices in Economy and Finance by LinkedIn in 2017 and #6 Top Social Media leader by Refinitiv in 2020.

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