AmCham Update Vol. 7 #069

Jakarta to Issue Indonesia’s First Municipal Bond, Indonesia Posts First Trade Deficit in Six Years, Manufacturing Shrinks in June, AmCham ICT Committee Meets, Prabowo Praises Police, Free Lunch Corruption Widens to include Police General and TNI Officer

Jul 03, 2026

Jakarta to Issue Indonesia’s First Municipal Bond

Taking aim at budget cuts that have made life difficult, the Jakarta government says it will issue Rp 3.5 trillion ($194.6 million) in municipal bonds to make up for what Jakarta Governor Pramono Anung said on July 2 was a “Rp 15 trillion cut” in regional transfers from the central government.

The bond issue would be Indonesia’s first municipal bond.

“[For] Jakarta bonds, we’ll issue Rp 3.5 trillion, and I’m sure there will be a lot of buyers. Why? Because we’ll be selling with a smile,” Pramono said, according to Kontan.

In Indonesia, regional governments rely heavily on central government funding. Under the current government, these transfers have been sharply reduced to fund President Prabowo Subianto’s populist programs like free lunches and village cooperatives.In Jakarta’s case, the transfer was cut from Rp 27.5 trillion last year to Rp 11 trillion this year.

Pramono asked Finance Minister Purbaya Yudhi Sadewa last year for permission to issue the municipal bonds. The original plan was to issue the bonds under a regional investment entity called the Jakarta Collaboration Fund.

After the meeting in October 2025, Purbaya called Pramono’s idea “rather ambitious” but said it could move forward.

In his remarks on July 2, Pramono said the Jakarta Collaboration Fund was scrapped due to regulatory constraints but the bond plan would go ahead.The funds from the bonds would be used initially to help build new hospitals and for education, said Pramono.

“[The fund] is truly [set for] the most basic goals, the most elementary in Jakarta, not for business-related purposes or the like. Anything business in nature and whatnot, I will arrange that in the regional budget,” said Pramono.

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Indonesia Posts First Trade Deficit in Six Years

Indonesia recorded a $1.61 billion trade deficit in May 2026, ending 72 consecutive months of surpluses and marking the first monthly deficit since April 2020. Imports rose 22.16 percent year-on-year to $24.81 billion, while exports fell 5.73 percent to $23.20 billion, according to a Statistics Indonesia (BPS) press conference on July 1.

Ateng Hartono, the BPS deputy for distribution and services statistics, said the deficit was driven mainly by a widening oil and gas trade gap, while the non-oil and gas balance remained in surplus.

“The trade balance recorded a deficit of $1.61 billion in May 2026,” Ateng said. The non-oil and gas balance still posted a surplus, supported by minerals, animal and vegetable fats and oils, as well as iron and steel amounting to $2.15 billion.

Oil and gas imports jumped around 71 percent year-on-year to $4.51 billion due to higher global oil prices and import volumes, while oil and gas exports fell 32 percent to $760 million. This widened the oil and gas deficit to $3.76 billion. Non-oil and gas imports also rose, driven by raw materials, capital goods and consumption goods, while exports weakened amid softer global demand.

Despite the monthly deficit, Indonesia recorded a cumulative trade surplus of $4.03 billion between January and May 2026, supported by a $16.31 billion non-oil and gas surplus despite a $12.28 billion oil and gas deficit.

Finance Minister Purbaya Yudhi Sadewa attributed the deficit to rising oil prices and said the oil and gas deficit “should come under control going forward,” noting that Indonesia’s cumulative trade balance remained in surplus.

The Jakarta Composite Index on July 3 followed Asian stocks higher, closing at 5,882.59, up 2.40 percent.

Syafruddin Karimi, an Economics Professor at Andalas University, warned that recurring deficits could put further pressure on the rupiah, fuel imported inflation and weaken Indonesia’s fiscal position. “If the deficit recurs, investors will conclude that the dollar supply from trade in goods is no longer enough to support the rupiah,” he told The Jakarta Post on July 1.

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Indonesian Manufacturing Shrinks in June

Indonesian manufacturing is mired in the doldrums as new orders shrink and prices rise at the fastest pace in years. As a result, the purchasing managers’ index (PMI) for the sector dropped in June to 46.9, a major plunge from May’s PMI of 50, the dividing line between contraction and expansion. The data was released by S&P Global on July 1.

New orders dropped for the first time in three months and at the fastest pace in a year.

Saleh Husin, a former industry minister and currently deputy chairman for industry at the Indonesian Chamber of Commerce and Industry (Kadin), said there is a clear weakening of operating conditions, driven by lower demand both domestically and for exports. He attributed the situation mostly to global trade disruption, geopolitical tensions and volatile energy prices, but also to domestic factors.

Indonesia's contraction was deeper than the rest of ASEAN. The PMI stood at 50.5 regionally, with Thailand, Vietnam, the Philippines and Malaysia still in expansion mode.

"This indicates that the pressures Indonesia is experiencing are not only external but also stem from domestic challenges," Saleh told The Jakarta Post on July 2.

A growing number of manufacturers are postponing expansion to focus on efficiency and cash flow, he said, the exception being some subsectors backed by government projects.

He urged the government to accelerate state spending and expedite stimulus measures to generate fresh orders.

Josua Pardede, chief economist at Bank Permata, said government policies have not failed but they also have not attracted sufficient labor-intensive industries. Investment continues to flow into manufacturing, energy, real estate and downstream mineral industries, with West Java remaining a key hub.

"The problem is that this investment remains too concentrated in large projects and specific sectors, resulting in uneven impacts on small and medium-sized factories and labor-intensive industries," Josua said.

Josua noted bright spots for the third quarter in mineral processing, palm oil, chemicals, vehicles, building materials and housing. “Manufacturing exports grew 6.80 percent year-on-year from January to May, driven by a 60.88 percent rise in nickel and nickel derivatives, but these localized gains should not be read as signs of a wider recovery," Josua said. May data showed manufacturing exports down 3.59 percent year-on-year.

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AmCham ICT Committee Surveys Tech Landscape

AmCham Indonesia’s ICT Committee convened its second meeting on 30 June at the Microsoft office in Jakarta.

The session was led by ICT Committee Chair Angga Airlangga, Head of Government and Regulatory Affairs at IBM Indonesia, and brought together members to discuss key regulatory and policy developments shaping Indonesia’s digital landscape.

The meeting also served as a check-in to review the Committee’s ongoing work, including updates from the Working Groups on Personal Data Protection and Public Electronic System Operators (ESOs), Child Protection, Artificial Intelligence and Digital Infrastructure.

The discussion focused on priority issues being tracked by the Committee, including the Artificial Intelligence Policy Framework, personal data protection (PDP) implementing regulations, cybersecurity governance, online child protection, digital infrastructure policy and developments related to revision of the Copyright Bill.

Participants underscored the importance of continued engagement with relevant government stakeholders, as well as coordination with other business associations to strengthen alignment and advocacy on cross-cutting regulatory issues.

AmCham extends its appreciation to Microsoft for hosting the meeting and to all participants for their contributions. AmCham remains committed to supporting constructive dialogue on Indonesia’s evolving digital governance landscape.

President Praises Police for Civilian Involvement

Indonesian President Prabowo Subianto has praised the national police for moving beyond law enforcement into food security and social welfare, saying the force is a major factor in his administration's flagship programs.

Speaking during the 80th anniversary of the National Police on July 1 at the Brimob Special Police Training Center in Bogor, Subianto said the police are a key part of national resilience by supporting food production, disaster response, price stability, and the government's strategic initiatives.

"I have seen firsthand how the police's food security program has strengthened national food security, particularly in corn production," Subianto said. He also praised the force for not allowing any domestic terrorism incidents over the past several years.

He also credited the police with helping to implement his Free Nutritious Meals (MBG) program by building more than 1,000 kitchens across the country.

Subianto has steadily increased the role of both the police and military in civilian affairs, raising fears in some circles of a return to a more authoritarian style of governance. Human rights groups worry about police conduct and stalled reforms, citing what they describe as a continued pattern of excessive force and arbitrary arrests, particularly in the handling of public protests.

“We urge the police to abandon their culture of violence and impunity by undertaking serious reforms to their oversight and accountability mechanisms,” Dimas Bagus Arya from the Commission for Missing Persons and Victims of Violence (Kontras) said on July 1.

Dimas criticized the expanding role of the police in civilian programs and government affairs, including the free lunch program. He said the problems were legitimized by the controversial new police law and could “undermine police professionalism.”

The president, however, was lavish in his praise. "Trust is a police officer's strongest weapon," he said, calling on officers to protect and defend communities, and uphold justice without fear.

The anniversary events involved about 9,000 participants from the police, military and civil society and capped weeks of celebrations and activities.

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Free Lunch Corruption Probe now includes Police General and TNI Officer

The Attorney General's Office (AGO) has expanded its investigation into alleged corruption in the government's Free Nutritious Meals (MBG) program by naming police Brig. Gen. Lalu Muhammad Iwan Mahardan, Secretary to the Deputy for Promotion and Cooperation at the National Nutrition Agency (BGN), as a suspect on July 2.

Prosecutors also disclosed the alleged involvement of Col. Budi Utomo, an active-duty Indonesian Military (TNI) officer, who remains under investigation through koneksitas, Indonesia's joint civilian-military investigative process.

The deepening scandal has unveiled a pattern of misconduct in the massive nationwide program, which has been criticized for being rushed and lacking firm governance.

According to investigators, Lalu instructed two associates, identified as YCS and RD, to establish a company called PT SGI in 2025 to supply food trays to prospective kitchens in the program. Prosecutors allege future partners were required to purchase trays from the company before receiving approval to be part of the program, with part of the predetermined selling price diverted to Lalu.

Lalu has been detained for 20 days at the Salemba Detention Center in South Jakarta and faces corruption charges.

The AGO also alleged that Col. Budi, who serves as Secretary to the Deputy for Procurement and Distribution at BGN, directed vendors and inflated procurement prices, particularly in the purchase of 21,000 electric motorcycles intended for use by program kitchens.

The motorcycles have been criticized as wasteful and unnecessary and that part of the program has been suspended.

“He [Budi] has not been named a suspect because active military personnel must be processed through koneksitas,” AGO Director of Investigation Syarief Sulaeman Nahdi told reporters on July 2.

The latest development follows earlier charges against former BGN Head Dadan Hindayana and two deputies. Other notable suspects include Andri Mulyon, a commissioner at logistics and procurement company Yasa Artha Trimanunggal, and Glory Harimas Sihombing, chair of the Indonesia Food Security Review Foundation.

Prosecutors allege the broader scheme involved irregular appointments of kitchen partners linked to BGN officials and inflated procurement contracts covering electric motorcycles, shoes, tablet computers, televisions, and other equipment.

Investigators said the probe will continue and additional suspects could be named as new evidence emerges.

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Update is AmCham’s regular newsletter on developments related to investment, the economy, regulations and issues related to doing business in Indonesia. It comes out three times a week. It is edited by AmCham Managing Director Donna Priadi and written by the AmCham Staff.

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