Sumber: Infobank
It has been six months since President Prabowo Subianto and Gibran Wakabuming Raka led Indonesia since being inaugurated on October 20, 2024. People’s lives are getting harder with their purchasing power continuing to weaken. Waves of layoffs (PHK) will continue to hit and further suppress people’s purchasing power, which will affect the performance of the real sector. During the 2025 Eid holiday season, 47 million people were unable to return home. Meanwhile, business people are increasingly nervous seeing the collapse of stock prices and the melting rupiah exchange rate to exceed IDR 17,000 per US$1 on April 8. Fiscal is also increasingly under pressure because state revenues have plunged 30.19% in the first two months of 2025. Experts have also warned that the various indicators above are warning signs of economic weakness.
When many people are saying “Indonesia is Dark (Indonesia Gelap)”, Prabowo continues to be optimistic, convincing that Indonesia’s future is bright. Moreover, a number of surveys state that around 80% of respondents are satisfied with the government’s performance during the first 100 days. Prabowo has also been vocal in responding to various public criticisms such as the budget relocation policy that is increasingly weakening the real sector, the government’s ballooning debt, and free nutritious meals (Makan Bergizi Gratis/MBG).
However, in the midst of his superior leadership at home, the capacity of President Prabowo and his deputy is now being tested in the global geopolitical arena. The United States (US) has raised import tariffs by up to 32% on a number of products from Indonesia. Does Indonesia dare to issue retaliatory tariffs on imports from the United States (US), which has aggressively raised import tariffs on its trading partner countries? Of course not. Indonesia’s economy is not as strong and independent as China’s. Xi Jin Ping, President of China, actually intimidated the US by raising import tariffs from the US by up to 125%. Previously, Donald Trump, President of the US, raised import tariffs from China by up to 145%.
At least, President Prabowo must be able to maintain Indonesia’s bargaining position when lobbying the US with 74 other countries to make an agreement on tariffs. Prabowo assigned Coordinating Minister for the Economy Airlangga Hartarto, Minister of Finance Sri Mulyani Indrawati, and Minister of Foreign Affairs Sugiono to the US. The results caused a stir, because reportedly the US actually raised new tariff policies on a number of products from Indonesia by up to 47%, such as textile and clothing products from Indonesia.
The question is, why doesn’t Indonesia offer to reduce import tariffs on goods from the US like Vietnam did? Responding to the threat of import tariffs to the US of up to 46%, Vietnam negotiated to lower their average import tariffs on US goods from 9.4% to 0%.
What Prabowo did was offer to accommodate 1,000 Gazans as Donald Trump wanted. Then, to balance the US trade deficit with Indonesia, Airlangga Hartarto has offered to increase imports of energy and agricultural products such as soybeans and wheat from the US. In fact, to negotiate reciprocal tariffs, it could be done by lowering import taxes on goods from the US as Vietnam has done.
The government’s choice to offer strategic imports for energy and agricultural products confirms Indonesia as the country that is most fond of importing goods rather than increasing its domestic production. From import activities, there are dark practices and tax evasion that make the country lose revenue from customs and excise. Import activities are also hunted by rent seekers because they involve misinvoicing and tax evasion carried out by unscrupulous officials and unscrupulous businessmen. A hot example is the import of fuel oil (BBM) which was revealed at the end of February 2025.
Some “unscrupulous” officials and rent seekers conditioned the domestic oil refinery capacity to not be able to meet needs so that imports had to continue and at higher prices. Domestic crude oil production by the Cooperation Contract Contractors (KKKS) was deliberately rejected on the grounds that it did not meet economic value. Finally, the strongest scandal in the management of crude oil and refinery products in the 2018-2023 period caused the country to lose IDR 193.7 trillion. The Attorney General’s Office named seven suspects, consisting of four senior officials of PT Pertamina subsidiaries and three private parties.
BANKING ON A ROUGH ROAD: STRENGTHENING RISK MANAGEMENT
A tariff war makes the economic prospects for 2025 even bleaker due to the tariff war. Last April, the International Monetary Fund (IMF) lowered its global economic growth outlook to 2.9% throughout 2025. Lower than the previous projection of 3.3%. Meanwhile, Indonesia’s economy is projected to grow by only 4.7%, lower than the previous projection of 5.1%.
The wave of layoffs in Indonesia is predicted to continue, after the Ministry of Manpower announced the number of layoff victims throughout 2024 which reached 77,965 people. Swelling from the number of layoffs of 64,855 people in 2023 and 25,114 people in 2022. The large number of layoffs increases unemployment and further suppresses people’s purchasing power which ultimately affects the performance of the real sector.
The banking industry and its ecosystem in the f inancial sector such as multifinance and insurance must manage the risks arising from global uncertainty. According to a number of economists and bankers contacted by Infobank, the impact of the tariff war will enter Indonesia through three channels:
One, the trade channel. Indonesia will face the risk of a decline in the trade surplus caused by falling commodity prices and global demand. Weakening industrial activity in the medium term could suppress economic growth. China’s economic slowdown and excess production capacity could cause Chinese products to flood the Indonesian market and displace local producers.
Two, investment channels. The imposition of tariffs will cause foreign investment in electronics, textiles, and footwear to slow down. In addition, the risk of expansion cancellation also increases and factory utilization decreases. Investors will prefer safe sectors, such as infrastructure, energy, and consumer goods that are protected from the impact of tariffs.
Three, the financial market channel, which is colored by global volatility and inflation that holds back interest rate cuts. The rupiah could be further pressured by the limited supply of US dollars due to the potential for foreign funds to flow out of the stock and bond markets which are getting bigger. Because these three channels affect the business world and money markets, and the banking industry must make several anticipatory responses to maintain asset quality and liquidity resilience.
In terms of assets, banks must strengthen risk management and monitor risk channels in export oriented sectors, such as electronics, textiles, footwear, and furniture. “Amid global trade tensions, we focus on strengthening liquidity, asset quality, and disciplined risk management. Meanwhile, we focus our credit expansion on main customers and leading sectors,” Darmawan Junaidi, The President Director of Bank Mandiri, told Infobank in April.
Meanwhile, credit tightening measures are still waiting for the implementation of the tariff policy which is currently still under negotiation in the next 90 days. This was acknowledged by Jahja Setiaatmadja, a senior banker, who admitted that he was not reckless in making decisions, especially in financing these sectors. “We are still observing while looking at developments of the atmosphere [of the banking and finance world], waiting for the implementation of the tariff policy after the negotiation period. So we don’t want to rush, take inventory of all companies such as furniture, apparel, which export seafood, then we reduce their credit, then f inish everything. We don’t want to be in a hurry like that. We will observe while looking at developments of the atmosphere [of the banking and finance world],” said the banker who will end his term as the President Director of Bank Central Asia (BCA) and will become the President Commissioner, as quoted by Infobanknews. com, April 24, 2025.
However, a stress test needs to be carried out to see the resilience of these sectors and other sectors affected by further spill-over. “While waiting for the implementation of the policy and certainty of the policy, the commissioner has reminded us to conduct a stress test and study, what percentage of debtors export to the US, how big the impact is, and what percentage depends on imports,” said Honggo Widjojo Kangmasto, the Deputy President Director of Bank Danamon, in April.
According to Infobank Research Bureau, banking loan at risk (LAR) showed an increase from 8.90% in September 2024 to 9.72% in January 2025, then increased to 9.77% in February 2025 and to 9.86% in March 2025. For this reason, banks also need to strengthen their allowance for impairment losses (CKPN) to anticipate the potential spike in non-performing loans (NPLs) and to be aware of credit with special attention. Bankers also provide hedging solutions for exporting corporate customers to protect them from rupiah volatility.
In terms of liabilities, banks must also strengthen their liquidity management strictly and ensure sufficient foreign exchange liquidity. In recent years, competition to seize public funds has become increasingly fierce, not only between banking products, such as savings and loans, but also Government Securities (SBN) issued by the government and Bank Indonesia Rupiah Securities (SRBI) issued by Bank Indonesia (BI).
More attractive yields make investors prefer to buy SBN or SRBI. The impact is that funds that should be parked in banks and used for investment in the private sector are reduced because they are used for government spending or public investment. Symptoms of crowding out in Indonesia have been seen, among others, because government debt continues to mount to reach IDR 8,813 trillion in December 2024 and must be paid off when it matures. Not to mention Bank Indonesia’s (BI) debt which reached IDR 922.4 trillion and state-owned enterprise (BUMN) liabilities of IDR 6,957 trillion.
Crowding out can really happen because the government will continue to increase its debt to finance populist programs such as the expanded MBG with a budget of IDR 171 trillion, the red and white cooperative (koperasi merah putih/KMP) which requires a budget of IDR 400 trillion, and the 3 million houses program where the APBN will allocate a budget of IDR 40.27 trillion. Banks must be ready so they will not be shaken by the impact of the tariff war and the rampant of crowding out which are going to happen.
When many people are saying “Indonesia is Dark (Indonesia Gelap)”, Prabowo continues to be optimistic, convincing that Indonesia’s future is bright. Moreover, a number of surveys state that around 80% of respondents are satisfied with the government’s performance during the first 100 days. Prabowo has also been vocal in responding to various public criticisms such as the budget relocation policy that is increasingly weakening the real sector, the government’s ballooning debt, and free nutritious meals (Makan Bergizi Gratis/MBG).
