Economic discontent erupted in protests across Indonesia in late August 2025. The trigger was the proposal to give generous housing allowances to members of parliament, but unrest had been bubbling since early in the year.<\/p>\n
Indonesia\u2019s economy has not been growing strongly enough to absorb either the five million people who lost jobs during the COVID-19 pandemic or the expanding working age population into formal employment.<\/p>\n
Indonesia\u2019s 5% growth per year and unemployment rate just under 5% appear solid enough \u2013 but the statistics <\/p>\n
hide the underlying problems<\/a>.<\/p>\n According to the\u00a0<\/p>\n official statistics<\/a>, four in every five jobs created since 2019 in Indonesia have been in the informal sector, and there were 31.5 million people at the end of 2024 trapped in near poverty with no job security.<\/p>\n President Prabowo Subianto\u2019s Government sought to calm the anger that drove August\u2019s protests by addressing the proximate causes of the demonstrations, withdrawing the housing perks for parliamentarians and promising a full investigation into the heavy-handed police response.<\/p>\n But the\u00a0<\/p>\n underlying causes<\/a> of the unrest are yet to be acknowledged. The post-pandemic scarring in the labour market is visible \u2013 there are not enough jobs for young people, including university graduates. Inflation may be low overall, but many face a cost-of-living crisis with high food prices and education costs. And the quality of governance is slipping backwards.<\/p>\n Less than a year into his term, Prabowo confronts a major test. He has inherited an economy and society yet to fully recover from the COVID-19 pandemic and now facing one of the most hostile and uncertain external environments in living memory.<\/p>\n Only months into his presidency, he had to deal with US President Donald Trump\u2019s 32% tariff on all Indonesian exports into the US. Indonesian manufacturing was already under pressure from a flood of Chinese goods unable to enter the US market from the trade war with China.<\/p>\n Prabowo\u2019s international economic diplomacy has restored some certainty through a\u00a0<\/p>\n co-ordinated ASEAN response<\/a>\u00a0that includes a declaration of non-retaliation to the Liberation Day tariffs. Indonesia was also able to\u00a0<\/p>\n negotiate a reduction<\/a> of US tariffs to 19%. But domestically, policies have done more to exacerbate than relieve the hardship felt by many. Spending increases for the police, military and on priority programs like the Free Nutritious Meals program came at the expense of transfers to provincial and local governments.<\/p>\n After the street riots, Prabowo appears to be listening. An updated 2026 budget\u00a0<\/p>\n reverses plans<\/a> to further cut government spending, including reducing the scale of cuts to regional government transfers. New Finance Minister Purbaya Yudhi Sadewa announced a stimulus package of almost US$1 billion in mid-September and that will help create some jobs and bring some relief, but that is not a substitute for reform.<\/p>\n The challenge for the Indonesian Government is to improve the quality of economic growth so that it <\/p>\n