[Click eStock] "Indonesia Economy Enters New Phase After 10 Years... Investment Opinion 'Neutral'"

Researchers Geun-A Kim and Kyunghwan Kim of Hana Securities stated on the 21st, "With the inauguration of President Prabowo Subianto, Indonesia's economy is entering a new phase after 10 years," adding, "There are concerns about increased fiscal burdens during the formation of the administration and the implementation of campaign promises."

As President-elect Prabowo mentioned that he will continue the policies of President Joko Widodo, policy continuity is expected to be maintained. In particular, the growth momentum based on Indonesia's key industries?infrastructure, renewable energy, and nickel development?is anticipated to continue. He also expressed confidence in achieving an 8% economic growth rate within 2 to 3 years of his term, raising expectations for Indonesia's high economic growth. However, concerns about increased fiscal burdens remain, and although the short-term impact on the stock market is minimal, it is considered an important medium- to long-term fundamental issue that needs to be addressed.

Prabowo argued that a strong administration is necessary for robust economic growth and amended the existing law that limited the number of cabinet ministries to 34 by removing the cap. The next government is expected to consist of more than 40 cabinet ministries. As the government organization expands, expenditures such as operating costs and salaries are expected to increase. Additionally, the expansion of ministries may lead to policy inefficiencies, potentially worsening the business environment. Since the business environment is one of the determinants of FDI (Foreign Direct Investment), in the worst case, Indonesia's investment attractiveness could decline. It is anticipated that the risk will decrease as more ministers are retained from the current cabinet, so attention should also be paid to the cabinet composition.

Policies such as free school meals and housing provision, which were major election pledges, are also areas of concern for the market. These policies appear to be aimed at economic development rather than populism. It was expected that Indonesia would benefit from a demographic dividend due to an increase in the working-age population over the next 20 years; however, due to the recent sustained high inflation and job losses, the number of people facing hardship has increased, and the demographic dividend is at risk of declining. Therefore, these pledges were presented as solutions. However, the budget is estimated at approximately $28 billion annually, and the debt-to-GDP ratio is expected to expand from 39% to 50%. While increased fiscal spending may stimulate economic growth, expenditures not supported by increased tax revenues are expected to worsen fiscal soundness. Researchers Geun-A Kim and Kyunghwan Kim stated, "It is necessary to monitor government policies such as tax reforms," adding, "Policy risks for the Indonesian stock market are expected to continue for the time being," and "Given the strong dollar environment, which acts as a factor for expanded foreign capital outflows, we maintain a neutral investment opinion."

This content was produced with the assistance of AI translation services.