Sector

Finance

Indonesia’s financial sector has been flourishing over the past half decade. The COVID-19 pandemic period, while being a time of austerity for most sectors, led to revolutionary innovations in Indonesia’s financial services industry, particularly in fintech. From December 2020 to December 2022, total assets of the fintech sector grew by 48.54 percent from 2020 to 2022. This growing trend continued even after the pandemic lockdowns ended, as total assets in fintech grew by 30.8 percent from December 2022 to December 2023.

View more

Finance

Indonesia’s financial sector has been flourishing over the past half decade. The COVID-19 pandemic period, while being a time of austerity for most sectors, led to revolutionary innovations in Indonesia’s financial services industry, particularly in fintech. From December 2020 to December 2022, total assets of the fintech sector grew by 48.54 percent from 2020 to 2022. This growing trend continued even after the pandemic lockdowns ended, as total assets in fintech grew by 30.8 percent from December 2022 to December 2023.

With fintech paving the way forward, traditional banking followed suit by revolutionizing its services. From 2022 to 2023, the banking industry’s fund distribution increased by 6.28 percent, source of funds increased by 6.33 percent, and total assets in the industry grew by 6.98 percent, reaching a total of US$8.22 trillion. Moreover, even regional banks have been benefitting from this wave of innovation. For the same period from 2022 to 2023, the regional banking sector saw a 7.67 percent in distributed funds, an 8.08 percent increase in source of funds, and a 7.52 percent increase in total assets, reaching a total of US$137.96 billion.

Innovations in Indonesia’s finance sector extend beyond financial services. On September 2023, the Indonesian monetary authority, Bank Indonesia (BI), introduced three pro-market monetary instruments that function as short-term fixed income securities with high coupon rates. The three instruments, SRBI, SUVBI, and SUVBI, were able to collect Rp 409 trillion (US$25.2 billion), US$2.31 billion, and US$387 million, respectively.

Particularly in the case of the SRBI, this instrument represented an innovative way to attract capital flow from abroad during a period of high credit costs and slow investment. Approximately 20.77 percent, or Rp 85.02 trillion (US$ 5.26 billion), of the total outstanding SRBI were owned by non-Indonesian residents, underscoring the SRBI’s success as a monetary instrument.

Even when compared to other countries in the same region, the Indonesian finance sector stands out for its stability against fluctuations. Throughout 2023, the global cost of credit was high due to hawkish Fed policies made to curb US inflation, resulting in a stagnation of capital flow on a global scale. Entering the second quarter of 2024, the composite index of many Southeast Asian countries such as Singapore and Thailand recorded price decreases compared to the same period last year, reaching -3.96 percent and -13.9 percent on the Straits Times Index (STI) and the Bangkok SET index, respectively. Meanwhile, the Jakarta Stock Exchange Composite Index (JKSE) recorded a price increase of 5.18 percent for the same one-year period.

In summary, the Indonesian financial sector stands out for its stability and consistency, maintaining growth through innovation even during periods of austerity or global uncertainty. This consistency is also reflected in its GDP, which grew by 7.4 percent from 2022 to 2023, contributing roughly 4.16 percent to the national GDP in 2023.

Latest News

April 28, 2026

Indonesia is facing mounting scrutiny over a United States proposal to introduce a notification-based overflight arrangement. As policymakers weigh strategic cooperation against legal consistency and long-standing non-alignment, the decision may ultimately redefine Indonesia’s position within an increasingly contested Indo-Pacific security landscape.

The Defense Ministry has confirmed the existence of a draft letter of intent (LoI) proposed by the US Department of Defense dated Feb. 26, titled “Operationalizing U.S. Overflight.” This non-binding document outlines a blanket overflight scheme, proposing that both countries transition from a case-by-case approval system toward a notification-based mechanism. Such a shift would significantly reduce procedural barriers to US military mobility.

This development has drawn widespread attention since Defense Minister Sjafrie Sjamsoeddin and US Secretary of Defense Pete Hegseth announced the Major Defense Cooperation Partnership (MDCP) at the Pentagon on April 13. The agreement rests on three pillars: military organization and capacity building, professional military education and training, and operational cooperation.

Consequently, media and public scrutiny have continued to intensify. The issue is particularly sensitive as it coincides with the implementation of a new legal regime, Law No. 21/2025 on National Airspace Management (UU PRUN), which came into force in December 2025. The law explicitly affirms that Indonesia’s airspace falls under the country’s full and exclusive sovereignty.

This overlap between a strengthened legal assertion of sovereignty and a proposal to ease foreign military access creates a structural policy tension that may test the consistency of Indonesia’s regulatory framework. A number of analysts have warned that granting blanket overflight clearance to the US risks undermining Indonesia’s legal sovereignty, contradicting the UU PRUN and weakening national control. Such a policy could erode Indonesia’s geopolitical neutrality and expose the country to broader strategic risks. As such, they argue, the proposal should either be rejected or, at minimum, strictly limited with robust regulatory safeguards. Beyond legal contradictions, the proposal raises concerns about a gradual shift in Indonesia’s long-standing “free and active” foreign policy toward implicit strategic alignment.

Domestically, competing views have emerged among stakeholders. House of Representatives Commission I has emphasized that any decision to grant comprehensive overflight access must undergo a parliamentary ratification process. Meanwhile, the Foreign Ministry has urged the Defense Ministry to adopt policies that do not carry adverse implications for regional stability. These differing positions highlight an institutional divide between defense-driven pragmatism and diplomatic risk sensitivity, potentially complicating policy coherence.

The Foreign Ministry further warned that opening Indonesian airspace to Washington could expose Jakarta to potential retaliation in the event of a broader conflict involving the US and Israel against Iran, citing recent Iranian attacks on Middle Eastern countries hosting US military assets. The ministry also cautioned that the plan could heighten tensions in the South China Sea and risk drawing Indonesia more directly into major power rivalry in those contested waters.

At the regional level, ASEAN countries are closely monitoring developments. China, however, has responded more explicitly. On April 17, Chinese Foreign Ministry spokesperson Guo Jiakun stated that, in line with the ASEAN Charter and the Treaty of Amity and Cooperation (TAC), member states must uphold collective responsibility for regional peace, security, and prosperity.

He further urged members to refrain from actions—including the use of their territory—that could threaten the sovereignty or territorial integrity of other ASEAN members. China’s response signals potential diplomatic pressure and frames the issue as a test of ASEAN norms and Indonesia’s commitment to regional neutrality.

Indonesia is geographically surrounded by US military installations in Australia, the Philippines, Guam, Papua New Guinea, and Singapore. In the Philippines, President Ferdinand Marcos Jr. expanded the number of bases accessible to the US to nine in 2023, including locations facing Taiwan and the South China Sea.

The upcoming Balikatan joint military exercises, scheduled from April 20 to May 8, will be the largest to date, involving participants such as New Zealand, Canada, Japan, France, and Australia. Expanding US access to Indonesian airspace would further consolidate Washington’s forward military presence in the Indo-Pacific, potentially recalibrating regional deterrence dynamics.

China, meanwhile, has also expanded its military footprint in Southeast Asia. Beijing operates military bases on artificial islands in the South China Sea, equipped with airstrips, ports, air defense systems, and long-range missile capabilities. It also maintains a military presence in Cambodia.

The overflight proposal reflects a strategic trade-off between operational cooperation and sovereign control, increasingly shaped by President Prabowo Subianto’s tilt toward closer engagement with the US and Western security frameworks. While this approach may enhance defense interoperability, it risks creating legal inconsistencies and gradual strategic entanglement, potentially diluting Indonesia’s long-standing non-aligned posture.

The key policy challenge is to ensure that deeper alignment does not outpace regulatory safeguards and diplomatic balance, thereby preserving Indonesia’s strategic autonomy.

Read more
Load more