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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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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.

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October 8, 2026

President Prabowo Subianto wants Indonesians to enjoy free education from kindergarten through university. Few would dispute the objective of making education more accessible. The harder question is how the government will pay for it. The state has yet to fully fund a Constitutional Court order to extend free compulsory basic education to private schools, even as Prabowo adds free university tuition to a budget already carrying increasingly expensive signature programs.

Prabowo reaffirmed his commitment at a limited cabinet meeting at the State Palace on Sept. 23, calling for free education at state institutions from kindergarten through university. The proposal followed his statement five days earlier that education at state schools and universities should be free, with funding potentially coming from money recovered from corruption.

At the school level, however, much of that promise already exists. Basic and Secondary Education Minister Abdul Mu'ti has said that state schools from kindergarten through senior high school are effectively free through the School Operational Assistance (BOS) program, complemented by the Smart Indonesia Program (PIP) for students from poorer families.

The more pressing unfinished obligation lies elsewhere.

In May 2025, the Constitutional Court ruled that limiting free compulsory basic education to public schools created unequal access because limited capacity at public schools forces some children to attend private schools. It ordered the government and regional administrations to guarantee compulsory basic education without charging fees at both public and private, or community-run, schools.

More than a year later, that ruling has yet to be fully implemented. The estimated cost is around Rp 181 trillion (US$10.3 billion), while roughly Rp 71 trillion has been approved for 2026, requiring implementation to be phased according to the government's fiscal capacity.

Before completing that obligation, however, Prabowo is ordering another, potentially larger commitment: making tuition free at state universities.

The Higher Education, Science and Technology Ministry told House of Representatives Commission X in September that abolishing tuition for 2.83 million undergraduate and diploma students at state universities would require Rp 93.74 trillion a year, excluding postgraduate students. That works out to roughly Rp 33.1 million per student annually.

The figure is so large partly because state universities have become increasingly dependent on tuition revenue. For the country's 20 autonomous state universities, or PTN-BH, government support reportedly fell from around 19-20 percent of operating costs in 2015 to just 5-6 percent in 2024, with tuition increasingly filling the gap.

Free tuition therefore raises a question beyond simply eliminating what students pay: Who replaces the revenue on which universities now depend?

The Rp 93.74 trillion estimate could also be only the beginning. Some lawmakers have argued that eliminating tuition alone would not remove financial barriers because students still need money for housing and other living expenses. Lecturers have pointed out that tuition helps finance teaching staff, laboratories, libraries and research. Private universities could also face competitive pressure if state universities became free while they continued charging tuition.

These are legitimate concerns. But they also illustrate how quickly an apparently straightforward promise of free tuition can become a much larger fiscal commitment. And fiscal space is precisely what Indonesia lacks.

The 2026 state budget already allocates Rp 769 trillion to education. But that figure includes spending on Prabowo's free nutritious meal program, which has an allocation of Rp 335 trillion this year.

The Constitutional Court ruled in July that free meals program spending that is not a core component of education must eventually be separated from the constitutionally mandated education budget, no later than for the 2028 budget. According to calculations cited in the draft, education spending without the program would amount to only 14.2 percent of the budget, leaving a gap of nearly six percentage points, equivalent to around Rp 240 trillion, from the constitutional 20 percent allocation.

Meanwhile, the state budget deficit widened from Rp 164.4 trillion in April to Rp 240.1 trillion by August. The latter amounted to 0.93 percent of gross domestic product, with state spending already exceeding revenue by around Rp 240 trillion during the first eight months of the year.

This does not mean Indonesia should abandon the goal of affordable higher education. The question is whether free universal tuition is the most efficient use of scarce public money when the state has not yet fully financed its existing constitutional obligation at the basic education level.

The university proposal, as currently discussed, would subsidize all 2.83 million students regardless of their families' ability to pay. A more targeted scheme could concentrate assistance on students who cannot afford tuition, costing a fraction of Rp 93.74 trillion while preserving fiscal room to implement the Constitutional Court's ruling on basic education.

Free education from kindergarten to university is an appealing ambition. But every promise ultimately has to fit within the same state budget. With the free meals program, the Red and White cooperatives and other priorities already making large claims on public resources, the government needs to establish not only what education it wants to make free, but also which obligations should come first and who genuinely needs state support.

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