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Business Times
2 days ago
- Business
- Business Times
Indonesia targets 5.4% growth in 2026 with big spending on food security, energy, free lunches
[JAKARTA] Indonesian President Prabowo Subianto has proposed a 2026 budget of 3,786 trillion rupiah (S$297.7 million), aimed at strengthening food and energy security while sustaining his high-profile free lunch programme. The plan also seeks to leverage the country's new sovereign wealth fund, Danantara, and private investment to drive the economy towards 5.4 per cent growth next year. Prabowo said the budget is designed to ensure Indonesia remains strong, self-reliant and prosperous. It was presented to parliament on Friday (Aug 15), following the president's first State of the Nation address ahead of the country's 80th Independence Day on Sunday. Indonesia will allocate 164.4 trillion rupiah for its food security programme, funding the development of new farmland and subsidised fertiliser for 9.26 million tonnes, as the government aims to boost agricultural self-sufficiency and reduce imports. State revenue is projected at 3,147.7 trillion rupiah next year, with an estimated budget deficit of 638.8 trillion rupiah, or 2.4 per cent of gross domestic product. Meanwhile, inflation is targeted at around 2.5 per cent. 'The government is committed to continuing budget efficiency measures to keep the deficit as low as possible,' Prabowo said, adding that he expects Indonesia to achieve a zero budget deficit by 2027-2028. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up The government and parliament have nearly six weeks to review and deliberate on the draft before it is finalised and passed into law in October. Nafan Aji Gusta, senior market analyst at Mirae Asset Sekuritas, said Prabowo's 2026 plans are highly optimistic, but market participants are waiting to see how the policies will be implemented. The Jakarta Composite Index was down 0.41 per cent on Friday, after briefly reaching an all-time high during midday trading. Record levels were hit for a second consecutive session, supported by optimism over potential US Federal Reserve rate cuts this year and increased clarity on US tariffs. 'The budget reveal could potentially boost market confidence, allowing investors to optimise their portfolio performance through various adjustments,' said Gusta, noting that the upcoming Bank Indonesia policy meeting on Aug 20 and the inclusion of several Indonesian firms in the MSCI Emerging Markets Index are expected to drive passive inflows. Weakening purchasing power Indonesia's economy grew 5.12 per cent in the second quarter, beating expectations. However, the nation of 280 million is grappling with weakening consumer purchasing power and looming export pressures from US tariffs. US President Donald Trump decided to impose a 19 per cent levy on Indonesian goods, in exchange for reducing trade barriers for American products. Unlike previous administrations, Prabowo's 2026 budget does not include a targeted salary stimulus for civil servants aimed at boosting household purchasing power. Bhima Yudhistira, executive director of the Center of Economic and Law Studies, said the government's efficiency measures under Prabowo have affected consumer purchasing power, as reduced government-led activity has dampened demand for goods and services. 'Indonesia needs to prioritise measures to support household spending, which is currently under pressure. Government spending and quality investment could play a key role in boosting purchasing power,' he said. Yudhistira said Indonesia is facing challenges from volatile commodity prices, such as palm oil, coal and nickel, which could affect government revenue. Sovereign wealth fund drive South-east Asia's largest economy will fast-track US$38 billion in downstream projects through Danantara, targeting the mining, coal, agriculture, fisheries and renewable energy sectors. 'The role of Danantara will be optimised, including by involving national and global private sectors in a synergistic and collaborative manner,' said Prabowo. He aims to boost oil and gas production next year while expanding the use of renewable energy through the development of clean power plants, including solar, hydro and geothermal. Indonesia has allocated 402.4 trillion rupiah for energy security in 2026. Prabowo said that the country must aim to achieve 100 per cent electricity generation from new and renewable energy within 10 years, or even sooner. The 73-year-old president has vowed to boost economic growth to as much as 8 per cent during his five-year term through populist measures. These include a multi-trillion-rupiah free lunch programme, a move that has raised investor concerns over its potential impact on state finances and budget discipline. Next year, Prabowo plans to nearly double the free lunch programme budget to 335 trillion rupiah, from 171 trillion rupiah this year, with a goal of reaching 82 million children. Crackdown on illegal resources Indonesia, the world's largest palm oil producer, pledged that a broader crackdown would be launched on the illegal exploitation of natural resources, after a survey of palm plantations found that 3.7 million hectares (ha) were found to be operating unlawfully. Five million ha of palm plantations have been placed under scrutiny. Prabowo also announced the government's seizure of 3.1 million ha of illegal plantations with assistance from the military. He said the government is also planning a crackdown on mining, adding that it had received reports of as many as 1,063 illegal operations throughout the vast, mineral-rich archipelago. He did not specify what type of mines or the commodities they were extracting. Prabowo added that the government would take action against businesses found to be hoarding and exploiting key commodities in Indonesia. Large-scale rice mills would also be forced to obtain government permits to ensure rice quality and affordability.
Business Times
24-06-2025
- Business
- Business Times
Indonesian coal miners on shaky ground as global demand falters, rules tighten
[JAKARTA] Indonesian coal miners are hurting from falling prices and softening demand from giant consumers India and China. This is even as a global supply glut and stricter regulations at home are further denting margins, adding salt to the wound. Profits go south The steep decline in coal prices has thrown a spanner in the works for Bukit Asam, a major state-owned mining company. Its first-quarter profit plunged 50 per cent year on year to 391.4 billion rupiah (S$30.7 million), highlighting the tough market headwinds that it is battling. Similarly, listed coal producer Alamtri Resources Indonesia saw its profit shrink dramatically to 1.3 trillion rupiah, down nearly 80 per cent compared with the same period last year. China accounts for 30 per cent of each company's export market share. Indonesia's total coal exports dropped sharply in the first four months of this year. Export value fell 19.7 per cent to US$8.2 billion, while export volume decreased 5.8 per cent to 122.8 million tonnes, compared to last year's figures. Nafan Aji Gusta, market analyst at Mirae Asset Sekuritas, said medium to large-sized coal companies with strong cash reserves are better equipped to weather the current challenges. They have laid out short and medium-term strategies focused on cost efficiency, operational improvements, and long-term business sustainability. 'These measures aim to maintain performance and boost optimism among coal industry players, despite the sector still being overshadowed by the falling global coal prices and ongoing international geopolitical uncertainties,' he noted. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up Amid such a challenging environment, analysts expect the country's coal producers to look to other Asian markets to diversify beyond its traditional markets and capture growth in emerging demand centres. 'We continue to see an increase in supply of Indonesian coal to countries such as Vietnam, Bangladesh and the Philippines, with all three expected to see continued demand growth over the next two to three years,' Minh Hoang, an analyst at S&P Global Ratings told The Business Times. With coal demand from China and India losing steam, analysts say Indonesia may need to fast-track its diversification strategy. Fitch Ratings' Asia-Pacific Corporates team even noted that 'some Indonesian coal companies are already branching out into gold or metallurgical coal to prepare for a lower-carbon future'. Still, as the decarbonisation race gains momentum, Indonesian miners may find themselves on increasingly shaky ground, caught between rising regulatory pressures at home and shrinking markets abroad. Shaky ground Analysts say demand for thermal coal in China – Indonesia's largest export market – is likely to continue its downward trajectory in the medium to long term. The decline is being driven by the East Asian giant's accelerated shift towards cleaner energy sources, alongside broader macroeconomic headwinds that are weighing on industrial activity and energy consumption. Annie Ao, analyst at S&P Global Ratings, noted that 'this year's weak coal demand is mainly due to the challenging macro conditions, with power-consumption growth slowing to 3.1 per cent in the first four months of 2025, from the 6 to 7 per cent seen in the past two years'. China's coal imports from Indonesia took a nosedive, plunging 26 per cent year on year to 12.5 million tonnes as at May 2025, showed customs data. The drop is part of a wider slowdown in the country's coal purchases, as overall demand cools. Imports from Russia also lost steam, slipping 9 per cent in May compared with the same period last year to 8.3 million tonnes. Hoang from S&P said that while thermal coal prices have historically shown high volatility, the current oversupply in the market is likely to hit Indonesian miners hard. 'With the current market glut, we expect Indonesian miners to feel the impact, as China's emission controls and falling prices are likely to reduce demand for Indonesian coal, which is mostly of low-to-mid quality.' In May, S&P Global Ratings took an axe to its thermal coal price forecasts, trimming them by 10 to 20 per cent amid waning global appetite. Meanwhile benchmark Newcastle coal prices are expected to hover around US$105 per tonne through the rest of 2025, before easing to US$100 in 2026 and settling into a steady groove at US$90 from 2027 onwards. Fitch Ratings echoed the concern, warning that export demand for Indonesian coal will continue to shrink, while domestic demand growth will not be sufficient to fill the gap. 'Margins for Indonesian miners will be squeezed this year, increasing pressure on their credit profiles,' said Fitch analysts, adding that miners may try to cut costs by adjusting their strip ratios or renegotiating contracts with mining service providers. Stricter rules Along with facing strong global headwinds in the coal market, Indonesian miners are also grappling with local hurdles as tightening domestic regulations add more pressure. While subdued prices challenge margins, new rules at home are making it even harder for miners to stay in the black. In March, the Indonesian government introduced a regulation requiring coal exporters to use the official benchmark price, known as the Harga Batubara Acuan. The move is aimed at strengthening state control over coal pricing and curbing reliance on independent pricing agencies, which had been quoting significantly lower rates than the government's reference. Analysts warn that this measure could erode profit margins, as companies are now bound to follow government-set prices. Adding to the pressure, the government has also raised royalties for coal miners. Crimping their flexibility further, exporters are now required to retain their foreign-exchange earnings in domestic banks for at least one year.
