(Feb 6): Indonesian President Prabowo Subianto is banking on a raft of populist measures in his first months in office to energise consumers in Southeast Asia’s largest economy, part of his goals to boost growth to levels not seen in nearly three decades.

The decisions — some of which override proposals of the president’s ministers — are aimed at jolting economic growth from a 5% average pace over the last two decades to Prabowo’s lofty target of 8%. Many will come at a steep cost to the state budget, putting investors on alert.

Indonesia’s currency and stocks were among the worst performers in Asia on Thursday.

In recent weeks, the former general has scrapped a drive to limit the distribution of subsidised cooking gas after it sparked public outrage, and scaled back a planned tax hike after Indonesians took to social media to express their grievances. He also accelerated his flagship free meal programme to cover all 83 million recipients by the end of this year, apologising to parents and children not included in a first wave of distributions.

Those moves follow one of his first decisions, shortly after taking office last year, to raise the country’s minimum wage by 6.5% this year, nearly double the adjustment calculated by the law.

Indonesians have largely welcomed Prabowo’s early direction, with one recent poll putting the 73-year-old’s approval rating at a record 81%, even as policy analysts question its sustainability.

“Prabowo’s popularity remains high because he is still seen as a Santa Claus distributing social assistance, and that is more tangible than policy,” said Aditya Perdana, a political lecturer at the University of Indonesia. That “is very useful in the short term, but to do it over five years, he can’t”.

The Indonesian benchmark stock index was the worst performer in Asia on Thursday, down as much as 2.3% and headed for its lowest level in more than seven months. The rupiah weakened 0.3% against the dollar, the second-biggest loser in the region.

Foreign outflows were triggered by the dimming outlook for economic growth, which in turn could drag down corporate earnings and bank lending, according to analysts including PT Mirae Asset Sekuritas Indonesia’s Rully Arya Wisnubroto and PT Bahana Sekuritas’ Satria Sambijantoro.

One key limitation will be Indonesia’s cap on its budget deficit, set at 3% of gross domestic product (GDP). The expanded food programme will add 0.7 percentage point to economic growth, but at a cost of another US$6 billion (RM26.57 billion) in state funds, while the move to scale back the tax hike could cost some US$4.6 billion in potential revenue.

At the same time, an aid package meant to soften the impact of higher value-added tax — discounted electricity rates, income tax deductions, and free rice — remains intact, adding to pressure on the budget.

Investors are closely monitoring Prabowo’s pledge to abide by the legal limit of the budget deficit despite his ambitious spending, and awaiting the outcome of his recent order for officials to claw back up to US$19 billion in planned spending this year to help fund priority initiatives like the free meal programme.

Implementing the budget cuts may prove challenging, and projected efficiency gains might be “overambitious”, said Kunal Kundu, an economist at Societe Generale SA.

“We see the possibility of prudence taking a back seat as populist spending takes the centre stage,” he added.

Anders Faergemann, a co-head of emerging-markets global fixed income at Pinebridge Investments in London, said the watering down of the value-added tax increase plans had prompted a revision of the firm’s fiscal deficit forecasts both this year and next. He cautioned that “maintaining fiscal targets will be key to sustaining investor confidence and supporting economic stability in the coming years”.

Prabowo’s policy moves highlight his focus on spurring economic activity at a time of soft domestic demand, particularly among lower- and middle-income consumers. Household consumption, which accounts for more than half of national output, has expanded below 5% for five consecutive quarters, putting a damper on overall growth.

Bank Indonesia last month cited a weaker outlook for household consumption and exports in its surprising move to cut its policy rate despite a faltering rupiah. And economists are largely expecting GDP growth to remain at 5% this year before rising slightly to 5.1% in 2026.

Some analysts have lauded Prabowo’s moves, pointing to US trade tariffs that will raise uncertainty for Indonesia’s export outlook and add to headwinds from weak purchasing power and underemployment.

“It’s the right time for these pro-growth measures,” said Brian Lee, an economist at Maybank Securities Pte Ltd. “But the measures will take time to filter through to spur consumption.”

The Indonesian economy also faces deeper, structural challenges, said Josua Pardede, an economist at PT Bank Permata in Jakarta. “The impact on growth may be limited if relying solely on populist policies without being accompanied by broader reforms to employment and investment conditions.”

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