Indonesia, explained.
The Indonesian rupiah has sunk a record 11% against the US dollar since Prabowo Subianto's inauguration (Dimas Ardian/Bloomberg via Getty Images)
Enticing investors into Southeast Asia isn’t easy – but building the project pipeline is where government can help.
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Australia’s opening to break its Indonesia investment droughtAustralia’s opening to break its Indonesia investment drought
Australia’s investment (Opens in new window) into Southeast Asia is going backwards, falling since 2022 to $104 billion. The drop-off hasn’t been dramatic, yet the total is less than half of what Australia invests in New Zealand. Three quarters of Australia’s investment in Southeast Asia goes to Singapore alone – and while the country does act as something of a gateway into the rest of the region, it’s not exactly a diversified picture.
The result sits uneasily with the Albanese government’s commitment to strengthening Australia’s relationship with Southeast Asia by boosting trade and investment ties. This ambition was spelled out in Invested: Australia’s Southeast Asia Economic Strategy to 2040 (Opens in new window), launched back in 2023. The reasonable theory is that countries who share strong economic links also have a stake in one another’s prosperity and success, so are more likely to align on broader issues of regional peace and security.
The strategy’s recommendations are sensible and now mostly underway. Total ASEAN–Australia trade (Opens in new window) is up around $20 billion since 2022 (off a base of $178 billion) – still a long way off the goal of tripling trade by 2040.
Other measures include a $2 billion Southeast Asia Infrastructure Financing Facility run by Export Finance Australia (EFA) to promote and de-risk Australian investment into the region. Austrade has also stood up investment deal teams to help facilitate new opportunities for Australian businesses in Southeast Asia. These initiatives are good, and of course will take time to bear fruit – but why haven’t we seen investment at least start to increase?
The simple answer: the investment landscape in much of Southeast Asia is challenging – often increasingly so – and the Australian government only has so many levers it can pull to entice the private sector there.
The gap between what the Australian government wants and what investors want is only widening.
The initiatives under the 2040 strategy make sense, but amid an investment climate the government can’t control, it is time to dig a little deeper into the ideas basket.
Indonesia is perhaps the most instructive case study of the challenges of driving Australian investment into Southeast Asia. With a population pushing 300 million and projected (Opens in new window) to become the world’s fourth-largest economy by 2050, Australia has a measly $7 billion invested.
Indonesia has long been a tricky market (Opens in new window) for foreign investors. Unpredictable regulatory and legal regimes and pervasive corruption make it a challenging prospect for Australian institutional investors, who typically have low risk appetites, high fiduciary standards to meet and limited Indonesia literacy. The delegation (Opens in new window) of Australian super fund executives that flew to Jakarta making all the right noises following Prime Minister Anthony Albanese’s visit in 2022 has seemingly not yet led to a single new major investment.
Added to this, Indonesia’s investment skies (Opens in new window) under President Prabowo Subianto have gone from a little cloudy to brewing with storms. Net foreign flows into Indonesian stocks and government bonds are already down around 7% (Opens in new window) since Prabowo’s election in February 2024; the rupiah has sunk a record 11% against the US dollar over the same period. Indonesia is at serious risk of a downgrade (Opens in new window) from “emerging” to “frontier” market by ratings agencies.
Prime Minister Anthony Albanese and Indonesian President Prabowo Subianto in Jakarta in February 2026 (@AlboMP/X)
The gap between what the Australian government wants and what investors want is only widening. While the Australian government can do little to improve the fundamental attractiveness of tricky markets in Southeast Asia, it can do plenty to help give Australian businesses the best chance to invest there.
Government plays an important countercyclical role – to step up with funding and practical support to keep economic wheels turning in times when private sector investment is languishing. One recommendation, buried in the 2040 strategy against which there has been no discernible (public) progress, is increasing government support for early-stage project preparation and advisory work, to help grow the pipeline of bankable projects in the region. Big players like Macquarie have advised (Opens in new window) this is where government assistance would be most productively directed.
Investor caution combined with local skill gaps can mean credible projects miss out on investment simply because they aren’t strong on paper. But more funding for technical upskilling and advisory support to help demonstrate project feasibility can help overcome this barrier – at a minimum, this could be done by expanding existing Department of Foreign Affairs and Trade programs such as Partnerships for Infrastructure (Opens in new window) (P4I), and by ensuring others like KINETIK, a $600 million program to support sustainable infrastructure investment in Indonesia, are being put to direct use in facilitating new investment.
Another potentially fruitful avenue would be for government to extend grant funding to suitable project preparation and advisory firms, to cover their up-front costs for feasibility studies (they would then likely take a clip of successful investments in the project down the track).
Both paths mean more good projects scoped, their investment cases developed at low cost, and their value communicated clearly to investors.
The benefits to government would be multiple – the opportunity to invest first if needed, de-risking the project, such as through EFA’s Southeast Asia Infrastructure Financing Facility, and attracting other investors. It could then pat itself on the back for helping bring bankable new opportunities to market. While this mechanism is likely to yield relatively smaller projects, as the Indonesians say, “sedikit sedikit lama-lama menjadi bukit” – little efforts over time can become a big hill.
About the author
Iona Main
Iona Main has worked as a foreign policy adviser for the Australian government in Canberra and New York, a management consultant at Bain & Company, and more recently as Chief of Staff to Allegra Spender MP.
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