Indonesia's new president slashes infrastructure spending amid populist priorities

As our first chart shows, the annualized growth rate for government capital spending immediately decelerated -- reaching the slowest pace in a year and a half.

Prabowo's cutbacks for 2025 total about IDR 306.7 trillion rupiah -- about USD 19 billion and equivalent to 8.5% of the national budget. The public works ministry has seen its allocation slashed by more than half. (As our second chart shows, even before Prabowo's cuts, infrastructure spending had already fallen to its lowest share of the Indonesian economy in 10 years.)

Prabowo is expected to make a new sovereign-wealth fund a budgetary priority. Meanwhile, the Ministry of Education, Science and Technology faced a cut equivalent to 39% of its original budget ceiling - prompting protests by students.

Prabowo's "Free Nutritious Meals" initiative, meanwhile, initially received an allocation of IDR 71 trillion. That's equivalent to about two-thirds of the national health budget. An official recently indicated that expanding the program to feed Prabowo's target of 83 million women and children - more than a quarter of the population - would require that sum to more than double.

With spending at that scale, the nation's food and catering industries are likely to see demand and output surge. Meanwhile, cutbacks on travel by state workers are also expected to hit the hospitality sector.

With the overall fiscal drag likely leading to the delay or cancellation of infrastructure projects, monetary policy is expected to play a more prominent role in stimulating the Indonesian economy. (Amid relatively subdued inflation, Indonesia's central bank unexpectedly cut rates last month.)