Indonesia, explained.
Indonesian President Prabowo Subianto gives his annual State of the Nation address in Jakarta, Indonesia, 14 August 2026 (Agung Kuncahya B./Xinhua via Getty Images)
Rice fields, kitchens and cooperatives all bear Prabowo’s imprint – but delivery is lagging the ambition.
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Indonesia’s tightening state grip on the economyIndonesia’s tightening state grip on the economy
Indonesia has never been shy about economic nationalism. Under President Prabowo Subianto, it has grown more muscular and centralised.
In his latest budget speech (Opens in new window), Prabowo presented a 2027 budget built on 6% growth while keeping the deficit at 2.4% of GDP, below Indonesia’s 3% legal ceiling. Food self-sufficiency sits near its centre, reflecting his view that reliance on imports leaves Indonesia vulnerable when wars or export restrictions disrupt supply.
But the costs of this pursuit already reveal tensions between national priorities and realities on the ground.
Merauke, at Indonesia’s southeastern edge, is the clearest example. The National Strategic Project combines one million hectares of new rice fields (Opens in new window) with large sugarcane and bioethanol developments (Opens in new window). The designation accelerates permits and land acquisition, while Indigenous communities say customary territory has been taken without consent. The wider development could convert nearly three million hectares of forest and swampland (Opens in new window). Indonesia already lost 433,751 hectares of forest in 2025 (Opens in new window), up 66%.
Food security gives the project its economic justification, although that case depends on uncertain yields and a remarkably low valuation of the land being cleared.
A centrally prescribed cooperative is not necessarily a people’s cooperative.
Resource exports are also being pulled towards the centre. From January 2027, strategic commodity exports are expected to pass through a centralised state-controlled system (Opens in new window) intended to strengthen Indonesia’s pricing power and curb under-invoicing, which Prabowo says may have cost the country US$5 billion (Opens in new window). PT Danantara Sumberdaya Indonesia (Opens in new window), a new state-owned intermediary under Danantara Indonesia, has begun reviewing selected export transactions for possible discrepancies. In its first two months, it examined 6,500 transactions worth US$14 billion.
Recovering leakage provides a persuasive economic case for centralisation, with far less attention paid to who will ultimately capture the commodity rents over which the centre is gaining greater control.
The same governing instinct reaches much closer to everyday life through Prabowo’s Free Nutritious Meals program, known in Indonesia as Makan Bergizi Gratis, or MBG. By late July, more than 20,000 Nutrition Fulfilment Service Units, or SPPGs (Opens in new window) were preparing and distributing meals nationwide under the National Nutrition Agency, largely through private partners. The military and police have also built substantial networks within MBG. The police reported 828 operating kitchens (Opens in new window) in July 2026 and aims for 1,500 by year-end, while the military had 113 operating and launched another 339 (Opens in new window) in September 2025.
The formal count understates their footprint. Some kitchens use land provided by military commands (Opens in new window), while Indonesia Corruption Watch identified at least 102 MBG partner foundations linked to political and state power (Opens in new window), including six with military affiliations. The program’s 2026 allocation was cut from Rp335 trillion (US$18.8 billion) to Rp229 trillion (US$12.8 billion (Opens in new window)). However, it still equals 45% of Indonesia’s Rp508.2 trillion (US$28.5 billion) social-protection allocation (Opens in new window), and about 30% of education spending.
A floating solar photovoltaic power plant in Purwakarta, West Java, 30 August 2026 (Timur Matahari/AFP via Getty Images)
The latest official estimate puts stunting at around 20% of children under five (Opens in new window). Yet, much of MBG still goes to school-age children, years beyond the first 1,000 days (Opens in new window) when nutrition has its greatest influence on stunting. Coverage also remains thin in areas with some of Indonesia’s highest malnutrition rates. Only 275 kitchens were operating across Papua’s six provinces in July (Opens in new window), against what had been Prabowo’s target of 2,500 by Independence Day (Opens in new window) on 17 August. Meanwhile, an education watchdog recorded at least 33,000 children had been affected by food poisoning (Opens in new window) by April.
MBG makes progress easy to display through kitchens opened and meals served. Its spending priorities are harder to square with WHO evidence that the critical window for preventing stunting runs from pregnancy to a child’s second birthday (Opens in new window), especially while coverage remains thinnest in high-risk districts.
That appetite for visible scale continues with Koperasi Desa/Kelurahan Merah Putih (“Red and White” village/ward cooperatives, Kopdes), a state-backed network designed to sell subsidised essentials and purchase local produce. Around 80,000 cooperatives have been legally established, although only 1,061 were operating by June 2026 (Opens in new window). The government expects physical facilities for 35,872 cooperatives to be completed by August (Opens in new window). The Finance Ministry placed Rp200 trillion (US$12.2 billion) in state-owned banks (Opens in new window) to expand lending, including to the cooperative program, while the military and police support its rollout (Opens in new window).
However, some Kopdes have appeared in hard-to-reach locations, including rice fields and beside cemeteries (Opens in new window), far from the consumers they are meant to serve. The program appears to have been built around available land rather than actual demand, with state banks potentially financing the difference.
This agenda invokes ekonomi kerakyatan (“people’s economy”), a vision associated with Indonesia’s first vice-president, Mohammad Hatta, widely regarded as the father of the country’s people-centred economy. But Hatta’s interpretation of Article 33 (Opens in new window) was not simply about expanding the state. It placed economic democracy at the centre: production “by all, for all”, with cooperatives grounded in collective ownership and member participation. A centrally prescribed cooperative is not necessarily a people’s cooperative.
Indonesia still carries a strong memory of the New Order of the Suharto era, when centralised authority became entangled with patronage and politically connected business (Opens in new window). East Asia’s experience (Opens in new window) shows that state direction works only with institutional discipline, accountability, and a willingness to abandon failure. Without them, Indonesia risks reversing post-Reformasi gains and leaving ordinary, law-abiding taxpayers to absorb the losses, turning economic nationalism into another source of discontent for an already economically insecure middle class (Opens in new window).
About the author
Dyah (Prita) Pritadrajati
Dr Dyah (Prita) Pritadrajati is a Research Fellow at the Lowy Institute’s Indo-Pacific Development Centre. Her work focuses on gender, labour markets, demographic change, and social policy across the Indo-Pacific, with a particular interest in how evidence can inform more effective, inclusive, and forward-looking public policy.
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