Solid fundamentals meet street fury as tax hikes, perks and populist spending shake investor faith

JAKARTA —. Indonesia is facing its most serious wave of dissent in years, with tens of thousands rallying from Central Java to the gates of the national parliament in Jakarta. The trigger was prosaic — lawmakers’ generous perks and steep local tax hikes — but the anger has broadened into a judgment on President Prabowo Subianto’s early policy choices. The paradox: the country’s economic fundamentals remain sound, yet the street says the policies are not working for ordinary Indonesians.

On paper, the macro story still looks resilient. Growth this year is widely projected in the high-4% to low‑5% range, underpinned by steady consumption and a pipeline of investment in minerals processing and manufacturing. Inflation remains contained, helping the central bank to begin cautiously loosening policy. Those indicators should reassure investors that Southeast Asia’s largest economy retains buffers against global headwinds.

But politics and policy execution have cut against that stability. The unrest gathered momentum in mid‑August after proposals to sharply lift local land and building taxes in several regions collided with revelations that members of parliament were enjoying thousands of dollars in monthly allowances. The resulting protests, amplified by a cost‑of‑living squeeze, spread rapidly to university campuses and provincial towns, and spilled into Indonesia’s sizeable diaspora. Clashes with security forces and a widely shared video of a ride‑hailing driver killed by an armored vehicle deepened public fury.

The administration’s response has been reactive. After initially defending the perks, the president moved to revoke them and reshuffled his cabinet, dismissing five ministers — including the widely respected finance minister — in an effort to tamp down outrage and reframe economic management. Markets wobbled on the signal of policy uncertainty. The new finance chief has since pledged to support growth and restore calm, while proposing steps to ease a liquidity squeeze in the banking system.

The populist centerpiece of the president’s economic agenda — an enormous free school‑meals program — was conceived to fight malnutrition and stimulate local supply chains. Yet the rollout has revealed strains: logistics have been uneven, food‑safety lapses have produced well‑publicized poisoning incidents, and the initiative’s price tag has forced abrupt belt‑tightening elsewhere. Regional governments and line ministries complain that sudden cuts and delayed transfers are hobbling basic services, prompting local leaders to seek revenue through sharp tax increases that have proven politically explosive.

At the same time, a strategy of big‑ticket state activism has come to the fore. A new sovereign wealth fund has been tasked with corralling state‑owned enterprises and catalyzing investment in energy, metals, and infrastructure — a bid to hard‑wire faster growth and job creation. In theory, pairing social protection with aggressive industrial policy could build a more inclusive economy. In practice, governance ambiguity around the fund, the optics of elite appointments, and the perception of power concentrated in the executive have unnerved parts of the market.

Bank Indonesia’s surprise rate cut in August — justified by low inflation and a desire to buttress activity — did little to calm nerves as protests intensified. The rupiah and equities sagged on days of heavy news flow, while the central bank and treasury discussed fresh “burden‑sharing” mechanisms and liquidity injections to keep credit flowing. None of this amounts to a crisis, but it underscores how quickly confidence can erode when fiscal signals turn erratic.

Underneath the noise, Indonesia’s structural story remains compelling. A decade of hard infrastructure build‑out has lowered logistics costs. The downstreaming of nickel and other critical minerals has anchored new industrial clusters, drawing global manufacturers into EV‑battery supply chains. Household balance sheets are, by emerging‑market standards, relatively healthy; the banking system is better capitalized than in past cycles. Those fundamentals are why multilateral lenders and major forecasters still see growth near 5% this year and next.

The protests, however, are a referendum on distribution and delivery. Voters are not disputing macro stability; they are demanding that stability be felt as purchasing power, public services that work, and jobs that pay. When Jakarta announces a headline‑grabbing program while slashing the transfers that keep clinics open and rubbish collected, it sends a contradictory message that people read instantly in their daily lives. The fury at legislative perks was, in that sense, a spark landing in dry tinder.

Politically, the president’s reshuffle buys time but not forgiveness. Trust will hinge on whether the government can execute three course corrections. First, fiscal policy needs coherence: publish a transparent financing plan that rings fences local‑government transfers and prioritizes program quality over raw scale. Second, governance around the sovereign wealth fund must be tightened — with independent oversight, clear conflict‑of‑interest rules, and routine disclosures — to reassure both citizens and investors that the state’s commercial muscle will not be abused. Third, de‑escalate: credibly investigate protest‑related abuses, refrain from securitizing dissent, and give civil society space.

Economic management is often judged not by ideology but by reliability. Predictable rules beat ad‑hoc fixes; targeted subsidies beat blanket promises; collaboration with regional leaders beats recentralization by decree. Indonesia does not lack growth drivers — from green‑industry investment to a young, increasingly urban consumer base. It lacks, at the moment, a sense that policy is rowing in unison toward those goals.

In the coming weeks, the biggest risk is not a balance‑of‑payments crunch or a banking accident, but a policy misstep that compounds distrust: a poorly messaged tax change, a splashy new project announced without funding clarity, or a heavy‑handed police response to a peaceful march. The opportunity, conversely, is to turn the protests into a reset — to show that a government elected on promises of both prosperity and order can deliver the former without sacrificing the latter.

Indonesia has weathered far worse storms. If the administration can restore fiscal credibility, professionalize its investment push, and listen to what the streets are actually saying, the country’s strong fundamentals will do the rest. If it cannot, no amount of macro resilience will quiet the anger now echoing through its cities.