Prabowo government inherits a troubled, extractive economy

October 25, 2024

JAKARTA – President Prabowo Subianto inherits an economy that, compared with a decade ago, is more reliant upon extractive industries, consumes far more coal and is more dependent upon trade with China than ever before. These are major challenges for the incoming administration—and it will take immense political will to pursue reforms that can put Indonesia on the path to a more sustainable growth model.

One of outgoing President Joko “Jokowi” Widodo’s major legacy projects has been the rapid expansion of a nickel downstreaming industry, and Prabowo plans to stay the downstream course. Starting in 2020 with the raw nickel export ban, Jokowi forced foreign investors who wanted access to Indonesian nickel to pour their money into a nascent domestic smelting industry. Most of these investors were from China, which imports the vast majority of Indonesia’s nickel to feed its steel industry back home.

Officially, this policy has been touted as an economic success. Smelting has made a significant contribution to regional GDPs across the country’s nickel belt, provided new jobs for domestic workers and boosted export revenues. This story of growth, however, is complicated by a range of serious negative externalities that have now been documented extensively in both the local and international press.

At many of the nickel smelting parks there is irreversible environmental damage, and coal-fired power stations in these industrial parks are increasing Indonesia’s greenhouse gas emissions. Indeed, Jokowi over saw a massive increase in domestic coal consumption, more than doubling since 2014 and with a particularly large spike between 2021 and 2022 when many smelters came online.

The sector’s distributional benefits are