Highlights

• Economic Stability with Structural Challenges: Indonesia’s economy remains stable, supported by trade surplus and investment inflows, but structural challenges persist. GDP growth in 2024 reached 5.03%, though the 8% target for 2025 appears ambitious given current trends. Inflation dropped to a historic low of 0.76% YoY in January 2025, raising concerns about weak consumer demand and deflationary risks.

 

• Bank Indonesia Holds Rates Amid Market Volatility: Bank Indonesia (BI) maintained its benchmark interest rate at 5.75% to stabilize the rupiah amid market uncertainty. While this decision aims to support currency stability, concerns over capital outflows and inflation management persist, particularly as fiscal pressures mount.

 

• Rising Current Account Deficit Reflects External Vulnerabilities: Indonesia’s current account deficit (CAD) improved in Q4 2024 to USD 1.15 billion (0.3% of GDP) from USD 1.38 billion in Q4 2023, but the full-year 2024 CAD widened to USD 8.86 billion. This underscores ongoing external vulnerabilities, with Indonesia still reliant on commodity exports amid global market fluctuations.

 

• Danantara Sovereign Wealth Fund (SWF) Sparks Governance Concerns: The government consolidated USD 900 billion in state assets under Danantara Superholding, targeting investments in nickel processing, AI, and renewable energy. However, governance transparency, political influence, and comparisons to Malaysia’s 1MDB scandal raise investor concerns about long-term sustainability and financial accountability.

 

• Fiscal and Trade Policies Face Mounting Pressures: Budget reallocations of USD 44 billion to fund Danantara and social programs heighten fiscal sustainability concerns, especially with USD 49 billion in sovereign debt repayments due in 2025. Indonesia recorded USD 3.45 billion trade surplus in January 2025, though this was driven more by declining imports than strong exports. Meanwhile, BRICS membership enhances global trade positioning, but political uncertainties, fiscal risks, and weak investor confidence continue to weigh on market sentiment.