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.
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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.
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President Prabowo Subianto’s plan to give more power to the Indonesian Military (TNI) to counter terrorism raises the specter of Indonesia reverting to the days when the military practically ruled the country under President Soeharto for more than three decades.
The draft of a presidential executive order, which has been circulating among policy circles, it may have even been leaked, has prompted civil society organizations to call out Prabowo, saying that besides getting more power to oversee national security, the military under the current wording in the draft could equate government critics with terrorists.
The Civil Society Coalition for Security Sector Reforms, grouping more than 20 non-governmental organizations, recalls that Prabowo had already used the word “terrorist” in describing students as perpetrators of the violent riots in August.
The Presidential Palace said Prabowo had not signed the order but had sent notice to the House of Representatives of his intention. An executive order does not require the approval of the House although the government may invite discussions before the formal signing.
Under the Prabowo plan, the TNI’s involvement in counterterrorism includes “prevention”, which the coalition says would pave the way for domestic intelligence operations and abuse of this power to intrude into the activities of legitimate individuals and civil organizations.
While the 2018 Terrorism Law allows for military involvement, the coalition says it should be regulated by a law rather than an executive order.
If the executive order is signed, it would spell doom for democracy, the coalition warns.
Dismissing the concerns, State Secretary Prasetyo Hadi said people should not rush into drawing conclusions about the substance and impact of the decree. TNI involvement in counterterrorism measures would be conditional, he said without giving further details.
Soeharto ruled with an iron fist by frequently invoking the Subversion Law that allowed the military to take action against any threat it perceived as endangering the nation. The law, which was used to silence and jail critics, was repealed not long after he stood down in 1998.
The 2002 State Security Law provides a clear division of labor between TNI and the National Police, the first focusing on national defense against external threats, and the latter on internal security. The law, however, allows for the military to assist the police in managing internal security under certain circumstances, including in terrorism.
President Prabowo ordered the military to intervene in the midst of the nationwide violent riots in August when police were clearly overwhelmed by the unrest, some of which was directed at the police for their brutal handling of the protests.
The plan to expand the powers of the military nevertheless fits a pattern since Prabowo took office in October 2024 of giving more powers to the TNI to deal with internal security matters.
Prabowo, a retired Army general, has brought in more military figures, both active or retired, into his government. His signature program of providing free nutritious meals for 82 million schoolchildren is mostly run by military figures.
The new TNI Law expands the number of civilian jobs that active TNI officers can hold and extends the mandatory retirement age up to 65 years. The TNI is also bolstering the size of its personnel with the creation of more than 100 Army battalions. The TNI is expanding the number of territorial commands (Kodam), from originally 15 to 21 since August, and the plan is to have a Kodam in each of the 38 provinces in the country.
This contrasts with developments during much of the 15 years until 2024, when the TNI focused on building its capacity to deal with potential external threats under the Minimum Essential Force (MEF) concept. Indonesia was then spending billions of dollars on modernizing its armaments, focusing on Navy and Air Force capabilities. Even then, by 2024, Indonesia had only achieved less than 70 of the MEF target, meaning that the country remains highly vulnerable to external threats.
Now under Prabowo, the focus is more on beefing up the Army, even though the President has repeatedly warned that Indonesia must be prepared for the possibility of a World War III.
Prabowo has denied claims that he is restoring the “dual function” doctrine of the military that was used by Soeharto to justify the military’s active involvement in politics and civilian affairs besides defense.
The trend since he assumed power indicates otherwise.
TNI chief Gen. Agus Subiyanto did not mince words when he said he is not gunning for dual function, but a more “multi-function” military.
