President Prabowo’s Stimulus Package Policy Boosts Growth and Overcomes Structural Challenges of the Indonesian Economy

Jakarta, University of Indonesia Economist, Fithra Faisal Hastiadi, assessed that the economic stimulus policy carried out by President Prabowo Subianto’s government can be the main driver of consumption, investment, and production activities, especially for the lower middle class and upper class. A number of challenges and opportunities are also in the spotlight.

In a dialogue on a private radio station in Jakarta, Fithra Faisal explained that although the Indonesian economy is predicted to grow above 5% throughout 2025, this figure is still lower than the average economic growth of the last 10 years, which is 5.07%. In the first quarter to the third quarter of 2024, economic growth was recorded at 5.11%, 5.05%, and 4.9% respectively.

“The challenge is domestic consumption which has never succeeded in exceeding economic growth. This shows the need for more strategic steps to boost people’s purchasing power,” he said.

Inflation throughout 2024 was recorded at 1.57%, the lowest since 1958. However, this low inflation also indicates slowing domestic demand.

“The middle class is the main driver of the economy. Therefore, a stimulus policy is needed that can overcome this structural challenge,” he added.

One of the President’s policies that is considered to support economic recovery is not to increase Value Added Tax (VAT) broadly. In accordance with the mandate of Law Number 7 of 2021, VAT should increase by 1% in 2025. However, this policy only applies to the wealthy, while other groups are balanced with an economic stimulus package of IDR 265 trillion.

Fithra Faisal also noted that government spending on consumption reached IDR 867 to IDR 900 trillion, with a focus on the lower middle class, such as through social assistance programs (bansos) and basic needs subsidies. Stimulus for the production sector, including labor-intensive programs, is also expected to boost productivity and improve Indonesia’s manufacturing Purchasing Managers Index (PMI) which had contracted for five consecutive months due to high production costs.

Fithra Faisal estimated that if the stimulus could be used effectively and on target, there was potential for additional economic growth of 0.5% to 1%. However, he also reminded that the dynamic global economic climate could be a significant challenge for the government’s growth targets.

The policy of budget refocusing and spending savings is considered key to preventing a swelling deficit. “Budget use must be more selective, and the government needs to allocate spending to programs that have a direct impact on economic growth,” he explained.

The scenario of increasing VAT from 11% to 12%, although it has been narrowed down to only luxury goods through the Sales Tax on Luxury Goods (PPnBM), still needs to be monitored for its impact. However, this step is considered not to be significant for non-upper class groups.

Fithra Faisal closed by emphasizing the importance of structural reform and efficient fiscal management to support long-term economic growth. The right stimulus is expected to not only mitigate the slowdown, but also pave the way for a more inclusive and sustainable economy.

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