Prabowo’s New Order redux presents hard choices for Canberra

Prabowo Subianto has commenced as Indonesia’s eighth president with a policy agenda that should prompt some hard thinking for Canberra.

His inauguration on 20 October completes a remarkable rehabilitation for the once-disgraced general who fled into exile after the fall of Suharto’s authoritarian New Order regime in the late 1990s.

Prabowo inherits a democracy that has steadily declined under outgoing President Joko Widodo. Freedom House scored Indonesia 57 out of 100 in 2023 for political and civil rights, down from 65 in 2017.

There are echoes of the New Order in Prabowo’s approach. He has described democracy as tiring and messy and used his inauguration speech to call for “polite democracy”. His party wants to return to an earlier version of the constitution that allowed President Suharto to rule with fewer constraints. Despite this desire, Indonesia’s complexity and powerful elites would likely dampen any push for more presidential power.

Prabowo has moved assiduously to build a coalition involving almost all political parties. To reward allies, he’s appointed a bloated cabinet with over 100 ministers and vice ministers. Coalition members will squabble between themselves, but they ultimately have a long-term interest in perpetuating the current system.

Prabowo will be firmly in control of foreign policy, which will reflect his view that Indonesia needs to be more assertive in pursuing its interests. He has appointed a loyalist and former military officer as foreign minister. Australia will rank low on his list of priority countries, below the US, China, ASEAN and wealthy East Asian and Gulf states.

His big spending agenda will create initial optimism among business and provide a near term boost to the economy. The market will take heart that competent Finance Minister Sri Mulyani Indrawati has been retained. But it would be a mistake to read too much into her appointment. She faces a tough battle to limit rent-seeking and manage a budget that will come under pressure from Prabowo’s big spending agenda.

Prabowo’s economic agenda is founded on populist policies, resource nationalism and infrastructure development. He is pursuing the impossible task of achieving food self-sufficiency within five years. He wants to extend “downstreaming” of resource production beyond nickel to other minerals and agricultural commodities. And there’s talk of building a multi-billion dollar sea wall off Java to protect urban areas from flooding.

To fund expenditure, he aims to grow state revenue but without any clarity on how that tax base will be broadened. Rising spending and stagnant revenue is likely to put pressure on the budget over time. The government will look to state-owned enterprises to carry the load but many of these are already in poor financial health. Without genuine reform, Prabowo is unlikely to achieve his goal of 8% growth, currently hovering around 5%.

This outlook this presents difficult questions for the Australian Government.

Canberra will need to re-write the script around Indonesia’s importance and why Australia should engage it. When President Widodo addressed the Australian parliament in 2020, then Opposition leader Anthony Albanese referred to Indonesia as a blossoming multi-party democracy. Such language is no longer relevant.

Beyond rhetorical changes, Canberra also faces a hard policy choice: whether to double down on the relationship in the hope of influencing the new administration or put it in a holding pattern.

The first option involves boosting the already significant time and resources thrown at Indonesia to hopefully curb some of the economic and foreign policy instincts that are sharply opposed to Australia’s interests. This will be challenging as Australia enters an election year, with the prospect of a minority government to follow.

The second option would avoid further investment beyond current settings. It would be a bet that at 73 years of age, Prabowo is unlikely to be fit for a second five-year term and may even not complete his first. There’s no risk of Indonesia slipping into China’s camp as it will remain steadfastly non-aligned.

This may appeal as other Southeast Asian partners offer better prospects. Limited ministerial attention and budgetary resources may be best invested in countries like Vietnam and the Philippines that are likely to give better geostrategic return. The Prime Minister’s decision to skip the inauguration to accompany King Charles may hint that Canberra is favouring this option.

There is, however, no option that involves diminished effort with Indonesia. While new differences are coming to the fore, Indonesia and Australia are still bound together by geography. Neither nation has the luxury of opting out.

Robert Law is Director of Advisory & Insights at Asialink Business.