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President Prabowo’s speech was interesting because it revealed both the strengths and weaknesses of the current policy direction.
What I dislike is that there still appears to be insufficient discussion around upside inflation risk, fiscal vulnerability, and exchange rate stress if oil prices remain elevated for much longer than the government currently expects. Indonesia remains highly sensitive to energy prices through subsidies, imported inflation, fiscal pressures, and rupiah stability. If oil enters a prolonged higher-price regime, the impact on the budget deficit, subsidy burden, and external balances could become much larger than current assumptions imply.
This matters because global conditions are already becoming more difficult. US yields remain high, global liquidity is tightening, and capital is becoming increasingly selective toward emerging markets. In that environment, fiscal credibility and exchange rate management become extremely important.
That said, on the positive side, I do think Prabowo understands one of Indonesia’s deepest structural problems: the country’s persistently low tax revenue-to-GDP ratio.
Indonesia has been blessed with enormous commodity wealth for decades, yet state revenue collection has consistently underperformed relative to the scale of natural resources extracted from the economy. A large part of the issue historically comes from leakages across the commodity ecosystem itself.
One major mechanism is underinvoicing. For example, commodity exporters may sell coal, CPO, nickel, or other resources to related offshore trading entities at artificially lower declared prices. The offshore entity then resells the same commodities to final global buyers at the true market price. The profits effectively accumulate offshore rather than domestically, reducing taxable income reported inside Indonesia.
Another mechanism often discussed globally is transfer pricing optimization. Large conglomerates with complex cross-border structures can shift profits between subsidiaries across jurisdictions through management fees, financing structures, procurement contracts, intellectual property arrangements, or intra-group commodity transactions. If not monitored carefully, taxable profits inside the producing country become artificially suppressed while profits appear in lower-tax jurisdictions instead.
This is not unique to Indonesia. Resource-rich countries globally have struggled with similar issues for decades because commodities naturally involve international pricing, offshore trading hubs, and complicated ownership structures.
That is why I can understand the broader strategic logic behind stronger state monitoring over commodity exports and FX flows.
Assuming the execution remains disciplined and commercially rational, a stronger state presence could theoretically improve transparency around export proceeds, pricing declarations, royalty collection, and taxable income reporting. In turn, that could potentially increase state revenue available for infrastructure, healthcare, education, and poverty alleviation programs.
Similarly, regulations requiring export proceeds to remain domestically within the banking system for a certain period may help stabilize FX liquidity and reduce pressure on the rupiah during periods of external volatility.
In many ways, what Prabowo appears to be pursuing resembles a more assertive form of state capitalism where the state attempts to regain greater control over strategic sectors, commodity rents, and capital flows.
The challenge, however, is always execution and balance. If implemented professionally with legal certainty, transparency, and predictable rules, stronger oversight could improve fiscal capacity and state effectiveness.
But if execution becomes overly interventionist, politicized, or unpredictable, markets may instead interpret it as rising state intrusion and weakening investment freedom. That balance will define if this is a good move or not.
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