Prabowo year one: governance, Danantara, and the soft repricing of the Indonesia trade

The governance reset of October 2024 #

Prabowo took office on 20 October 2024 with the Kabinet Merah Putih, 48 ministers, 56 vice ministers, and 5 coordinating ministers, the largest in Indonesian history. Eight parties from the Koalisi Indonesia Maju control the legislature, and the cabinet absorbs PDI Perjuangan figures, retired military, and Jokowi era technocrats simultaneously. The signal to capital markets was twofold: continuity at Bank Indonesia under Governor Perry Warjiyo, whose term extends to 2029, and discontinuity at the political ministries where loyalty outranks technical reputation.

Within the first hundred days, Prabowo issued Presidential Regulation 47 of 2024 reorganizing ministerial portfolios, Presidential Regulation 75 establishing the Badan Gizi Nasional to administer Makan Bergizi Gratis, and the foundational decrees that became the Danantara holding. Bahlil Lahadalia was elevated to Energy and Mineral Resources Minister in August 2024 and retained the portfolio under Prabowo with explicit oversight of Pertamina governance and the downstreaming agenda.

Sri Mulyani's exit and the fiscal authority shift #

Sri Mulyani Indrawati was retained at Keuangan through the cabinet's first hundred days as a credibility signal, then replaced in February 2025 amid public dispute over the Penyertaan Modal Negara budget line, the equity injection vehicle the executive uses to recapitalize SOEs without breaching the deficit ceiling. Her successor inherited a 2025 APBN that already reflected three Prabowo priorities: the 71 trillion rupiah Makan Bergizi Gratis allocation, a 20 trillion rupiah PMN line for Danantara seed assets, and reduced subsidy compression after deferred fuel price reform.

Sri Mulyani's tenure, anchoring four presidential terms, had been the keystone of Indonesia's investment grade narrative. Her departure forced rating agencies to reassess governance risk independently of debt arithmetic. Moody's affirmed Baa2 stable in March 2025, Fitch reaffirmed BBB stable in April 2025, and S&P held BBB stable in May 2025, each citing Danantara contingent liabilities, the off budget character of new spending vehicles, and political flexibility around the Law 17 of 2003 deficit ceiling. The administration's response was quarterly augmented PSBR reporting beginning Q3 2025, a meaningful step that lags Brazil and Mexico practice.

The Law 17 of 2003 ceiling and the VAT reversal #

Law 17 of 2003 on State Finances caps the central government deficit at 3.0 percent of GDP and consolidated public debt at 60 percent of GDP. Breach requires either presidential emergency declaration, as during the COVID 19 Perpu 1 of 2020 episode, or amendment of the law itself. Prabowo's team explored both paths during early 2025 budget preparation. The amendment route stalled in DPR consultation by April 2025 after PDI Perjuangan and Demokrat signaled opposition. The administration shifted instead to revenue side and off balance sheet adjustments.

The VAT increase to 12 percent took effect on 1 January 2025 under Law 7 of 2021 on Tax Harmonization. Within forty eight hours, Prabowo announced the rate would apply only to luxury goods, reverting the effective standard rate to 11 percent. The revenue loss from the walkback was approximately 75 trillion rupiah versus the original projection. The pattern recurred: the executive announces, coalition feedback forces partial retraction, and the gap is closed through PMN, royalty rebasing, or quasi fiscal vehicles. Through October 2025 the headline deficit landed at 2.78 percent of GDP for fiscal 2025 against a 2.53 percent budgeted figure, while the augmented PSBR including Danantara contingent flows tracked closer to 4.0 percent.

Danantara: the executive control vehicle #

Danantara Indonesia was launched on 24 February 2025 under Law 1 of 2025 amending the SOE Law, with formal status as the Badan Pengelola Investasi Daya Anagata Nusantara. The structure is new in Indonesia. Seven systemic SOEs were transferred from Kementerian BUMN supervision into Danantara as the holding entity: Pertamina, PLN, Telkom, Bank Mandiri, BRI, BNI, and MIND ID. Total assets under management were disclosed at approximately 900 billion dollars at launch, making Danantara among the world's ten largest sovereign investment vehicles by gross asset count, though capital structure and the share of operating assets versus liquid claims remain opaque.

The governance design concentrates authority. The Dewan Pengawas, the supervisory board, is chaired by the president and includes three former presidents in a non binding advisory capacity. The CEO operates with direct presidential reporting, bypassing the Kementerian BUMN line. The intended logic is faster capital allocation and dividend recycling toward strategic priorities, in particular downstreaming, energy transition co investment, and the IKN Nusantara capital project. The realized friction sits in three places. Underlying SOEs face dual reporting to OJK and Danantara without clear conflict resolution. Bond market spreads on Pertamina and PLN paper widened 35 to 60 basis points in March 2025 on the announcement, then partially reversed once Danantara confirmed continued sovereign support. And the absence of audited consolidated financials through April 2026 limits external scrutiny of intra group transfers.

OJK responded with the May 2025 amendment to the Banking Code, formally Peraturan OJK 8 of 2025, requiring quarterly disclosure of state ownership chains for all listed banks and tightening the related party transaction definition. The amendment is meaningful because three of the seven Danantara entities are systemic banks, and it represents the principal regulatory check on holding level cross subsidization.

Bahlil at ESDM and the nickel value chain consolidation #

Bahlil Lahadalia's portfolio at the Ministry of Energy and Mineral Resources is the operational center of the downstreaming agenda. The Morowali Industrial Park, the Weda Bay Industrial Park, and the smaller Halmahera cluster together host more than 60 nickel processing lines, the bulk of them rotary kiln electric furnace units producing nickel pig iron, with a growing high pressure acid leach fleet feeding the cobalt and battery precursor chain. Indonesia's share of global mined nickel reached approximately 55 percent in 2024 and 58 percent in 2025 on the way to a projected 62 percent by 2027, a level of concentration without precedent for any industrial metal since Saudi Arabia's role in conventional crude.

The HPAL portfolio is where the strategic stakes are highest. The Halmahera Persada Lygend, Huayue Nickel Cobalt, and PT QMB New Energy Materials operations together account for roughly 270,000 tonnes of MHP mixed hydroxide precipitate capacity in 2025, with announcements pointing to 470,000 tonnes by 2027. The chain extends downstream into nickel sulphate, then precursor cathode active material, then battery cell joint ventures with CATL and LG Energy Solution. Bahlil's 2025 ministerial regulation tightened the export Domestic Market Obligation on nickel ore and lifted royalty rates on RKEF outputs. The royalty rebasing, formally Peraturan Pemerintah 26 of 2025, raised effective state take by approximately 90 basis points of mineral export value at current LME prices, generating an estimated 9 trillion rupiah of additional non tax revenue in fiscal 2025 against contractor protests.

Pertamina governance under the Bahlil portfolio remains the higher risk file. The 2025 internal audit triggered by the Patra Niaga subsidiary fuel quality dispute exposed unresolved procurement governance issues, and the resulting reshuffle of the Pertamina board in July 2025 was widely read as Bahlil consolidating direct authority. The energy transition consequences are material. Pertamina's Power and New Renewable Energy subsidiary holds the indicative pipeline for geothermal expansion under PIRMOL, the Pengembangan Industri Renewable Modul Operasi Lingkungan framework, and any execution slippage feeds directly into the JETP delivery question.

BRICS, JETP, and the IKN funding pinch #

Indonesia's full BRICS membership took effect on 6 January 2025 alongside Egypt, Ethiopia, Iran, and the United Arab Emirates from the original Johannesburg expansion, and the country was admitted as a full New Development Bank member in March 2025. The strategic positioning is dual track. Membership provides access to NDB project finance, swap line negotiations with PBOC and the Bank of Russia, and political optionality during the second Trump administration's tariff deliberations. The cost is reputational and operational. JETP, the Just Energy Transition Partnership announced at G20 Bali in November 2022 as a 20 billion dollar package combining IPG public finance, GFANZ private finance, and Indonesian co investment, has slipped materially against original milestones.

The Indonesian Just Energy Transition Partnership investment plan, finalized in November 2023, set a target of peaking on grid power sector emissions by 2030 at 250 million tonnes of CO2 equivalent. By October 2025, only approximately 1.4 billion dollars of public finance and an additional 0.6 billion dollars of private blended capital had been committed against specific projects, compared to original IPG ambitions to mobilize 11.5 billion dollars within three years. The reasons combine genuine project preparation difficulty, PLN's operating model constraints around early coal retirement, and a perception in Washington and Tokyo capitals that the BRICS pivot dilutes Indonesia's strategic alignment with the IPG funders. The administration's preferred frame is non alignment, but the funding consequences are real.

The IKN Nusantara capital project is the third leg of the funding pinch. The original Bappenas plan envisioned 466 trillion rupiah of total investment through 2045 with roughly 20 percent from the central budget and the balance from private and SOE sources. Through October 2025, central budget commitments had reached approximately 75 trillion rupiah, on track, but private and SOE participation lagged badly at less than 30 trillion rupiah cumulative. Prabowo confirmed in March 2025 that the seat of government remains in Jakarta until further notice, a signal that internal cabinet sentiment had shifted away from the Widodo era forced relocation timeline. The IKN authority budget for 2026 was reduced from the indicative 40 trillion rupiah to 18.4 trillion rupiah, the clearest fiscal triage decision of year one.

Capital markets, the Anies opposition, and what year two tests #

The capital markets verdict on year one was soft rather than harsh. Bank Indonesia held the BI Rate at 6.00 percent through January 2025, cut to 5.75 in February, and trimmed to 5.50 in September 2025 as Federal Reserve easing created policy space. The rupiah tested 16,800 per dollar in April 2025 on the VAT confusion and again in August 2025 on the Pertamina reshuffle, but BI's term deposit operations and SRBI auctions absorbed pressure without forcing harder defensive action. Foreign ownership of SBN drifted from 14.8 percent at end 2024 to 13.6 percent in October 2025, a soft outflow rather than a capitulation. The 10 year IndoGB yield ended October 2025 at approximately 6.95 percent, roughly 110 basis points wide of US Treasuries, well inside the historical episode range.

The political opposition reset matters for year two. Anies Baswedan, the runner up in the 2024 presidential election, has positioned outside the formal coalition and built a media presence around fiscal orthodoxy critique, a deliberate inversion of his 2024 campaign which leaned more populist. The PDI Perjuangan position is more fluid. Megawati Sukarnoputri retained party leadership through the May 2025 PDIP congress, the party remained nominally opposition, but several PDIP figures hold cabinet seats. The effective opposition is therefore split between an institutional Anies grouping and a hybrid PDIP that constrains the executive on selected issues, most clearly the deficit ceiling amendment.

Year two will test three governance hypotheses. First, whether Danantara can publish audited consolidated financials by December 2026 and establish a credible dividend policy that recycles SOE earnings into the central budget at predictable rates. Second, whether the Makan Bergizi Gratis full national ramp can be funded within the Law 17 ceiling without additional VAT or excise increases that the coalition will accept. Third, whether Bahlil's energy portfolio can deliver visible PIRMOL renewables additions and JETP project closures sufficient to keep IPG funders engaged through the second Trump administration's foreign policy reconfiguration. Our base case sees Indonesia muddling through on all three with no rule breach, augmented PSBR drifting toward 4.4 percent of GDP, and sovereign spreads holding inside 120 basis points to US Treasuries. The harder downside is not a debt crisis but a credibility erosion that turns into a 50 to 80 basis point repricing on the back of any single Danantara linked contingent liability event.

Sources #

• Statistik Ekonomi dan Keuangan Indonesia, monthly
• APBN 2025 dan APBN 2026 Nota Keuangan
• Berita Resmi Statistik, GDP and labor releases
• Indonesia 2025 Article IV Consultation, staff report
• Indonesia Economic Prospects, December 2025 edition
• Asian Development Outlook 2025 update, Indonesia chapter
• Republic of Indonesia sovereign credit report, April 2025
• Fitch Affirms Indonesia at BBB, Outlook Stable
• Moody's affirms Indonesia's Baa2 ratings, maintains stable outlook
• Indonesia launches Danantara sovereign wealth manager, transfers seven SOEs
• OECD Economic Surveys: Indonesia 2025