Return of the technocrats: Can Prabowo’s economic team prove the doubters wrong?

Prabowo has appointed 112 members to his Red and White Cabinet, comprising 48 ministers, 5 ministerial-level officials, and 59 vice ministers.  His “bloated” cabinet reflects a strategy of rewarding loyalists, retaining trusted Jokowi aides, and placating political opponents. However, I argue that his choice of macroeconomic managers and advisors does not easily fit these patterns.

Sri Mulyani’s return as finance minister is a notable move, considering her past disagreements with Prabowo over defence budgets. Her reappointment signals a commitment to fiscal prudence—a hallmark of her tenure. Under her guidance, Indonesia has consistently maintained a deficit-to-GDP ratio within the legal limit of 3% (except during the COVID-19 crisis) and government debt well below the 60% cap.

Her reappointment comes at a critical time. Prabowo’s administration has expanded the number of ministries significantly, from 34 to 48, creating a challenging landscape for coordination. Sri Mulyani’s experience allows her to hit the ground running while other ministers adjust to the new structure. Her presence provides a significant level of reassurance to investors and international partners who prioritise fiscal sustainability in developing countries.

Yet, her track record is not without criticism. Indonesia’s tax ratio has remained stubbornly low at around 10%, even after implementing a tax amnesty program. This poses a significant challenge to financing government initiatives without increasing reliance on debt. Furthermore, Indonesia’s economic growth has not returned to pre-Asian financial crisis levels, highlighting the structural issues that have persisted across administrations. Sri Mulyani’s presumed ability to address these longstanding issues will be crucial to meeting Prabowo’s ambitious economic goals.

However, Sri Mulyani is not the only high-profile figure in Prabowo’s economic team. The President has created a new macroeconomic advisory team called the National Economic Council (Dewan Ekonomi Nasional, DEN). Led by Luhut Binsar Panjaitan, DEN includes top-tier economists like Mari Elka Pangestu, Chatib Basri, and Arief Anshory Yusuf. They are expected to bring substantial expertise to the team.

DEN’s return represents a departure from Jokowi’s National Economy and Industry Committee (Komite Ekonomi dan Industri Nasional, KEIN), which primarily served as a platform for business sector voices. By contrast, DEN aims to give advice on broader macroeconomic challenges through a more holistic lens.

Complementing DEN are special presidential advisors tasked with economic policymaking, called Special Presidential Advisors (Penasihat Khusus Presiden, PKP) and Special Presidential Envoys (Utusan Khusus Presiden, UKP). These roles are also filled by prominent names in the field.

Can these stellar economic teams help Prabowo achieve his economic goals?

Two possible outcomes

Given Indonesia’s current gloomy political and economic landscape, the appointment of capable technocrats within the inner circle of national leadership is a breath of fresh air. The effectiveness of Prabowo’s economic team, however, hinges on how much influence they can wield. Two scenarios could unfold here.

One possibility is that these advisors remain largely symbolic, as their influence is curtailed by structural and bureaucratic limitations. Each member of PKP and UKP, while compensated at minister levels, has minimal staffing support—just two aides and basic support staff. They will also be coordinated by the Cabinet Secretary. However, that role has been stripped of authority to provide support for Cabinet management, a responsibility now shifted to the State Secretary. Luhut, who heads DEN, may struggle to wield the decisive authority he previously exercised as Jokowi’s powerful Coordinating Minister for Maritime and Investment Affairs.

To prove useful, DEN and other economic advisory teams must propose alternative solutions to Indonesia’s pressing economic challenges, which require immediate attention. The recent data release by the Central Bureau of Statistics (Badan Pusat Statistik, BPS) shows that, by the third quarter of 2024, Indonesia’s economy had only grown by 5.03 %  cumulatively. It is further predicted that Indonesia’s growth will stagnate at around 5 to 5.1% for the full year of 2024 and 2025, making Prabowo’s 8% growth target look way out of reach. Consumers’ purchasing power is also eroded, marked by sustained (month-to-month) deflation from May to September 2024 .

Unfortunately, the slowing growth and declining purchasing power will only make it challenging for the government to mobilize revenue. This is of particular importance since, to support Prabowo’s 8% growth target, revenue must be significantly bumped up to finance the growing number of spending initiatives and projects.

This explains why the plan to hike the value-added tax (VAT) rate to 12% in 2025 is not entirely abandoned but rather selectively applied to luxury goods. The government still needs to raise sufficient revenue to meet increasing pressure to raise fiscal expenditure without breaking the deficit cap. However, this is only a quick fix to a larger problem that Indonesia has in the context of revenue mobilization.

There is fertile ground here for DEN, UKP, and PKP members to contribute productively to the debate and offer second opinions on revenue and growth issues in Indonesia. Unfortunately, no serious proposal has been offered to the public just yet.

The second scenario that could unfold is that Prabowo might use his advisors to complement his decisive leadership style. This would involve balancing technocratic insights with political pragmatism. Historical precedents lend credence to this possibility. During the New Order, Soeharto relied on prominent names in economics like Widjojo Nitisastro and Ali Wardhana to navigate economic crises, implementing reformist policies that steered Indonesia through turbulent times. Prabowo’s economic advisory team could replicate this, using their expertise to address Indonesia’s economic challenges with evidence-based policy recommendations.

With regard to this, it is worth revisiting the old thesis developed by William Liddle in 1991 about the relative autonomy of politicians in economic policymaking. He posited that policymakers, like Soeharto in the New Order era, were not always constrained by their culture and ideology when making economic policy choices. Instead, politicians can make a more autonomous decision in economic policy depending on the context they are facing and the political-economic calculations of a proposed reform. This means it is possible for policymakers to adopt a policy that contradicts their personal beliefs if they are provided with the right context and qualified advice.

At the start of the New Order, the majority of Indonesian elites were anti-foreign, reflecting a post-colonial view that was still highly entrenched at that time. Soeharto’s natural vantage point also tended to be inward-looking, understandably shaped by the fellow soldiers, politicians, and nationalists within his inner circle. If ideology were the only determinant, Indonesia’s economy would have turned more inward. Yet, Soeharto implemented several policy reforms that made Indonesia more welcoming to foreign trade and investment, especially in the 1980s, benefitting from the presence of professional economists in the New Order era.

Prabowo’s inclination towards economic nationalism is not unique if seen in this context. He has entertained anti-import and self-sufficiency ideas for a very long time, and he used this rhetoric vividly during his inaugural speech. The fact that he is also willing to embrace mainstream, Western-educated economists reflects a strategic flexibility in his economic ideology.

Diverse perspectives

It is easy to say DEN and other advisory bodies will probably not be that important, and that sort of scepticism is legitimate. However, if DEN were that irrelevant, it would have cost Prabowo nothing to pick someone who is more closely aligned with his longstanding economic vision. He has a long list of people for that.

While his inward-looking emphasis may diverge from technocrats’ market-driven approaches, their presence could provide more diversity in policy discussions. This ideological balance could prove critical as Indonesia navigates domestic and global economic challenges.

Ultimately, the success of Prabowo’s economic team will be judged by their ability to deliver tangible improvements in the lives of ordinary Indonesians, and that will, in turn, depend on Prabowo’s willingness to listen to them. Without visible progress, scepticism about their role and Prabowo’s economic vision will persist.

The public expects results, and anything short of this will render the grand promises of his presidency mere rhetoric.