AmCham Update Vol. 7 #088

Prabowo Vows Fiscal Discipline as 2027 Spending to Rise, Gov’t Procurement to be Centralized, Independence Day Protests Fizzle Out, Strategic Mineral and Commodity Exchange to Launch by 2027, BI Enters Consumer Credit Card Business

Aug 19, 2026

Prabowo Vows Fiscal Discipline as Spending to Rise in 2027

President Prabowo Subianto has proposed a narrower fiscal deficit for 2027 even as government spending rises, pledging to maintain fiscal discipline while supporting faster economic growth.

Presenting the 2027 Draft State Budget and Financial Note to lawmakers on Aug. 14, Subianto proposed state spending of Rp 4,097.2 trillion ($239 billion) and revenue of Rp 3,426 trillion, resulting in a deficit of Rp 671.2 trillion, or 2.4 percent of gross domestic product (GDP).

The proposed deficit is below the 2.68 percent target in the 2026 State Budget and the government’s latest projection of 2.85 percent for this year.

“The dream is actually a balanced budget,” Subianto said, adding that the government would seek to reduce the gap further during implementation.

The 2027 budget prioritizes food security, energy and water independence, education, health, downstream processing and industrialization, disaster resilience, rural development and poverty reduction.

The government is targeting economic growth of 6 percent in 2027, up from the 5.4 percent target in the 2026 budget. Other assumptions include inflation of 2.5 percent, an average rupiah exchange rate of Rp 17,500 per US dollar, and a 6.9 percent yield on 10-year government bonds.

Subianto’s flagship Free Meals Program was given a budget of Rp 240 trillion, below this year’s initial figure of Rp 335 trillion, which has since been cut.

Economists questioned whether some of the targets are achievable. Center of Reform on Economics Indonesia Director of Macroeconomic, Fiscal and Monetary Policy Research A. Akbar Susamto said the 6 percent growth target appeared to be more of a political aspiration than a realistic projection.

Permata Bank Chief Economist Josua Pardede said the deficit plan would still face major challenges despite pledges for stronger fiscal discipline. “The target of reducing the deficit to 2.4 percent of GDP by 2027 is mathematically possible, but in practice it is quite challenging and rather optimistic,” Josua said on Aug 16.

The president also said sovereign wealth fund Danantara will keep growing, with a new arm being prepared to handle long-term development projects that are not commercially viable but are important for the country.

It will be called the Danantara Development Management Fund and will invest in projects including the giant Java sea wall.

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Gov’t Procurement to be Centralized

President Prabowo Subianto used his budget speech on Aug 14 to announce that all government procurement is to be handled by the National Public Procurement Agency (LKPP), a policy he says will save hundreds of trillions of rupiah and have a major impact on business.

“Fiscal discipline does not stop when the budget is passed; it must be present in the spending of every rupiah,” the President said in his speech before lawmakers. “All this time, there have been too many ministries, institutions and regional administrations purchasing the same goods separately, but at different prices.”

He said fragmented purchasing practices were “weakening the state’s bargaining power.”

“Whether the central government or regional, city or district administrations, we are the government of the Republic of Indonesia,” Subianto said. His conclusion is that the government must “consolidate all goods and service procurement.”

Subianto said ongoing consolidation at the regional level has already saved 21 percent of the 2025 procurement budget.

A “wider and disciplined” process could save as much as 30 percent of the country’s Rp 1.2 quadrillion (US$67.1 billion) procurement budget, he said. He did not say if the new rules would apply just to the central government or include regional and city administrations.

Permata Bank chief economist Josua Pardede was positive about the plan as a way to “fix the quality of state spending.”

He agreed that government institutions have less leverage currently because they buy the same goods at different prices. Josua noted that a similar plan by the Health Ministry this year had cut spending by Rp 10.25 trillion from the planned Rp 19.39 trillion.

“This showed that the largest austerity opportunity is indeed in the procurement of the same goods bought regularly in big volumes and with large quotation disparities among institutions,” said the economist.

He said procurement businesses and middlemen would take a hit, but noted that “a more efficient national producer” could benefit from the plan, given the likelihood of bigger purchases and better-planning.

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Independence Day Protests Fail to Gather Steam

Despite determined protests by hundreds of students timed to Independence Day celebrations, there was no repeat of the mass unrest that occurred on the same date in 2025.

Protesters gathered on Aug 18 to denounce what they called “decaying freedom” in Indonesia, and repeat calls for President Prabowo Subianto’s administration to scrap wasteful spending during a time of economic woes and natural disasters.

They were met by a huge police presence backed by the military. Police detained at least 21 people and accused them of being not students but provocateurs.

In Jakarta, the protest was led by the University of Indonesia student executive body (BEM UI) and more than 200 students tried to march to the Hotel Indonesia (HI) traffic circle only to be blocked by police barricades along Jalan Sudirman.

The protesters said the Independence Day celebration was an affront to the current state of democracy. “If we keep being silenced and intimidated for protesting and expressing our opinion, what does independence really mean?” BEM UI chair Yatalathof Imawan said during the rally.

The protest included calls for an end to the increased military role in civilian affairs and the expansion of democratic participation.

The students also said the free nutritious meals and Red and White Cooperatives programs were wasteful and should stop, with the funds redirected to disaster relief following the Aug 15 earthquake near Flores Island in East Nusa Tenggara (NTT).

Jakarta Police spokesperson Sr. Comr. Budi Hermanto said 9,242 joint police and military personnel were deployed to secure 47 “public gatherings” across the city.

Budi said the large deployment was meant to guarantee that the city was free from disruption.

Another protest was held on Aug 17 in Yogyakarta, where Gadjah Mada University (UGM) students raised similar demands, as reported by Kompas.com.

Government Communications Agency (Bakom) head Muhammad Qodari said the government listens to suggestions and advice within limits.

“There are things that are the mandate and authority of the duly elected President,” Qodari said on Aug 18. “If [a program] is part of his vision and mission, the government will improve it, should we find any flaws. But if you ask for it to be changed, give us some opportunities to try.”

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Indonesia to Launch Strategic Mineral and Commodity Exchange by 2027

President Prabowo Subianto has announced plans for a Strategic Mineral and Commodity Exchange by Jan 1, 2027, as a way to strengthen Indonesia’s bargaining position in key commodity markets.

Speaking during the presentation of the 2027 Draft State Budget at the House of Representatives on Aug. 14, Subianto said the exchange would cover strategic commodities currently benchmarked largely through overseas markets.

State Secretary Minister Prasetyo Hadi said the exchange would include strategic Indonesian commodities such as crude palm oil (CPO), nickel, and coal.

The Chair of the OJK Board of Commissioners, Friderica Widyasari Dewi, said two implementing regulations are being prepared: one governing the phased transition of strategic mineral and commodity trading, and another governing operation of the exchange. The regulations are to be ready by Sep 17.

House Speaker Puan Maharani said the president had nominated M. Sarjito as the sole candidate to head the new exchange under the OJK.

Sarjito previously served as OJK Deputy Commissioner for Financial Services Business Conduct Supervision and Consumer Protection before retiring in 2024.

Indonesian Palm Oil Association (GAPKI) Chairman Eddy Martono said establishing a new exchange would not necessarily be problematic, but urged the government to consider the existing trading mechanisms of each commodity.

“Palm oil already has an exchange in Indonesia, namely ICDX, so there is no issue if a new exchange is established or the existing one is strengthened,” Eddy told Kontan on Aug 18.

He noted that domestic palm oil trading volumes are limited and that Indonesian CPO prices are still largely benchmarked against transactions in Malaysia. Eddy said the effectiveness of the new exchange would depend on its ability to generate sufficient liquidity and credible price discovery.

Subianto has frequently said he believes Indonesia is being cheated by having its commodities priced and traded abroad. His plan to centralize exports of palm oil, coal and ferroalloys under a unit of Danantara rattled investors and markets when it was announced in May and has since been walked back to simply monitoring trades.

"We do not want the Indonesian people to be cheated anymore," he said on Aug 14. He said the new export entity had found a potential $5 billion in export proceeds from differences in reported and actual prices.

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BI takes its Gov’t Credit Card into the Public Marketplace

Bank Indonesia is going into the consumer credit business by transforming a credit card it developed for government bodies into a card that can be used for consumers and businesses. The idea is that Kartu Kredit Indonesia will help spur growth and boost spending.

Acting BI Governor Destry Damayanti said the move provides an efficient domestic payment instrument integrated with the national payment system infrastructure.

"The introduction of this domestic scheme offers broader opportunities for business players to enter the digital ecosystem and provides alternative credit facilities to support public consumption," Destry said on Aug 17, as quoted by Antara.

BI developed the card in 2022 to facilitate government expenditure transactions. Now it will compete with existing consumer credit cards and can be issued by eight local banks: Bank Central Asia, Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, CIMB Niaga, Permata Bank, Bank Mega and Bank Syariah Indonesia, the central bank said.

The card, nicknamed KKI, is linked to the existing domestic payment system and can be used %u2060at merchants that accept Quick Response (QRIS) code payments, including internationally, BI said. It will operate in the same market as international credit cards and the public can choose which card to use.

Ryan Rizaldy, the head of the Payment System Policy Department at Bank Indonesia, said the card is being developed in stages and will first be available as a digital card that can be used for transactions within the QRIS system.

Subsequently, the KKI will expand to facilitate online transactions and as a physical card.

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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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