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Dr. H. Tirtayasa, S.Ag., M.A.
Graduate of the Thousand Ulama Doctor Cadre Program
Indonesian Ulema Council (MUI) and National Zakat Board (BAZNAS RI), Class of 2021

In 2025, Indonesia faces a complex interplay between politics and the economy. With relatively stable economic growth projected between 4.7 to 5.2 percent, the outlook appears moderate. However, political uncertainties and budgetary policies become critical to maintaining national stability and realizing ambitions for high growth (OECD, 2025; World Bank, 2025; Reuters, 2025).

Growth and Political Realities

Indonesia’s economy grew by 4.9% in the first quarter and 5.12% in the second quarter of 2025—exceeding expectations. However, other indicators such as investment, manufacturing, and consumption do not reflect a commensurate upward trend (BPS/API, 2025; Reuters, 2025). Analysts express skepticism that these figures may be influenced by the political goal of achieving 8% growth by 2029 (Yudhistira & Faisal, 2025).

Fiscal Policy and Political Risk

The 2025 Presidential Instruction on budget efficiency cut over IDR 300 trillion from ministerial spending and regional transfers, reallocating funds to finance social programs such as free meals and public investment (Wikipedia, 2025). These sharp cuts—including in infrastructure and education—sparked public protests and opposition, revealing tensions between ambitious social agendas and fiscal resilience (Wikipedia, 2025; The Australian, 2025).

At the same time, the government launched a sovereign investment fund (“Danantara”) to raise capital from state-owned enterprises. Critics argue that this mechanism carries high political risk and potential for corruption due to limited oversight (Wikipedia, 2025; The Australian, 2025).

Consumption, Purchasing Power, and the Middle Class

Purchasing power remains under pressure due to layoffs in the manufacturing sector (around 14,000 workers), moderate inflation, and a VAT increase to 12% in 2025. This burden is most heavily felt by the middle class, who lack sufficient compensation and risk slipping into economic vulnerability (UMS, 2025; Mediadosen, 2025).

Monetary Policy, Exchange Rate, and Political Stability

The central bank responded to the weakening rupiah by intervening in the NDF (Non-Deliverable Forward) market, maintaining controlled inflation and strengthening financial system resilience amid global uncertainty (ULM, 2025; UNTAR, 2025). External shocks—from climate crisis to geopolitical tensions in the Middle East—remain serious threats (UNTAR, 2025).

Global Trade Challenges and Political Economic Response

The ongoing US-China trade war threatens Indonesian exports, including textiles and electronics. In response, Indonesia redirected shrimp exports to China and the Middle East in a bid to diversify its markets (Reuters, 2025). However, foreign investment inflows remain sluggish (down 7%), while disruptions by local thugs further escalate political risks surrounding industrialization efforts and Indonesia’s ambition to attain developed country status (FT, 2025; The Australian, 2025).

Inequality and Sustainability

Gender and regional economic inequalities persist. Low-income groups bear the brunt of regressive policies such as the carbon tax, with minimal social compensation (Siregar, 2025; Muthmaina, 2024). Without adequate social and political safeguards, such economic tensions risk escalating into broader crises of public trust.

Stability Politics and the Politics of Uncertainty

Political stability has proven to affect inflation and investor sentiment significantly. Conversely, domestic conflict, inconsistent policies, and political turmoil tend to trigger inflation and external pressures (Salma & Khan, 2023). The “#KaburAjaDulu” phenomenon reflects youth exodus and disillusionment—symbolizing a silent protest against economic and political decisions perceived to neglect the productive generation (Wikipedia, 2025).

Summary of Indonesia’s Political Economy in 2025

Indonesia’s political economy stands at a strategic crossroads. While efficient budget strategies and social investments show ambitious governance, the risks of political fragmentation, democratic deficit, and global volatility demand a careful balance between fiscal priorities, social needs, and political legitimacy. Without this alignment, high-growth ambitions—such as the 8% target by 2029—remain elusive.

Political economy is not merely about macroeconomic numbers. It encompasses how fiscal and monetary policies are aligned with political legitimacy, how governments respond to protests, and how institutions ensure transparency. If not managed inclusively, economic growth can lose its political foundation—potentially undermining democracy and economic resilience alike.

References

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