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Is This Time Different? Indonesia's Response to Uncertainty

Author

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  • Mari Pangestu
  • Shiro Armstrong

Abstract

Indonesia faces domestic economic discontent and a hostile global environment. Less than a year into the Prabowo presidency, protests in August 2025 highlighted public frustration with weak job creation, high living costs and elite privileges. Pandemic scarring lingers, with millions pushed into insecure informal work. Tax revenue is constrained, while austerity, over-regulation and weak monetary transmission suppress demand and investment. These vulnerabilities are compounded by international shocks, including US ‘Liberation Day’ tariffs and uncertainty around the multilateral order. Addressing these challenges requires fiscal stimulus to alleviate discontent and foster job creation through bold structural reforms to boost productivity, competitiveness and exports. Priorities include deregulation, institutional reform, digitisation and integration into green and regional supply chains. Trade agreements, such as the Regional Comprehensive Economic Partnership and the Indonesia–European Union Comprehensive Economic Partnership Agreement, and aspirations, such as joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the OECD, can help to lock in and anchor reform. Political will to undertake bold domestic action, paired with pragmatic economic diplomacy, is essential to restore stability and secure inclusive growth.

Suggested Citation

  • Mari Pangestu & Shiro Armstrong, 2025. "Is This Time Different? Indonesia's Response to Uncertainty," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 61(3), pages 297-332, September.
    • Handle: RePEc:taf:bindes:v:61:y:2025:i:3:p:297-332
    DOI: 10.1080/00074918.2025.2588819
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