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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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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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Defense Minister Sjafrie Sjamsoeddin has confirmed that Chinese J-10 fighter jets are set to soar across Indonesia's airspace, ending months of speculation. While this procurement follows Indonesia's recent acquisitions of Rafale jets from France and fighter aircraft from Turkey, the Beijing deal has drawn particular attention for its speed and opaque timing.
Since President Prabowo Subianto took office last October, defense procurement has accelerated dramatically. The government has signed a deal for 42 Rafale aircraft worth an estimated US$8.1 billion and another for 48 Turkish combat planes, valued at around US$9.6 billion. Both agreements were widely covered as symbolic of renewed efforts to modernize the military's air fleet and strengthen bilateral defense ties with strategic allies.
Under the Prabowo administration, the country also looks set to revive its partnership with South Korea in developing KF-21 Boramae, a 4.5-generation fighter jet. The two sides have signed a revised Project Agreement on Joint Development for the country's continued participation in the KF-21 program, just days after Indonesia agreed to purchase KAAN jets from Turkey.
By contrast, the announcement on the procurement of China's J-10, reportedly for 42 aircraft, appeared without warning. Unlike the highly publicized French and Turkish deals, the Chinese agreement caught observers off guard, prompting questions about its strategic rationale and Indonesia's broader foreign policy direction. The obscure process signals a potential swing toward Beijing.
Indonesia's foreign policy underwent a significant shift immediately after the inauguration of Prabowo, who has made over 16 overseas trips and visited 24 countries in the first year of his presidency. His administration has loudly promoted its "free and active" foreign policy, refusing to enter any geopolitical bloc and welcoming any nation interested in striking a deal with Indonesia.
Under this same rationale, Prabowo pushed Indonesia to join BRICS, an intergovernmental organization that aims to counter the Western-dominated geopolitical order. This controversial move immediately raised questions: Is Indonesia moving freely and actively, or is the policy merely personal ambition disguised as national interest?
Known for his realpolitik views and Army background, Prabowo has emphasized strengthening military capacity to anticipate future threats in an uncertain international climate. This is reflected in his administration's defense budget of Rp 245.2 trillion (US$15 billion) this year and a projected Rp 335.2 trillion for 2026.
Prabowo's military-focused agenda, which began during his tenure as defense minister under his predecessor Joko "Jokowi" Widodo, has led him to strike deals with both Western and Eastern countries to purchase equipment to rejuvenate and modernize the Indonesian Military (TNI).
As defense minister, Prabowo largely favored deals with Western countries, signing major procurement contracts with France's Dassault Aviation (Rafale fighter jets and Scorpene submarines), the United States' Boeing (F-15EX fighter jets), Europe's Airbus (A400M transport aircraft), Italy's Fincantieri (FREMM-class frigates) and the United Kingdom's SMP (SRV-F Mk.3 rescue submersibles).
While these deals signaled Prabowo's preference for Western manufacturers, his recent pivot toward non-Western arms makers marks a sharp strategic departure.
Now, 42 Chinese J-10 jets are set to arm the Indonesian Air Force. Prabowo's defense procurement strategy targeting equipment from BRICS countries has piqued the interest of analysts, who view the move as part of Indonesia's shift to the East.
While this theory rings true, the greater concern is the logistical and technical challenges arising from this multisource procurement strategy. Purchasing defense equipment from too many different countries will add layers of complexity for the airmen tasked with operating and maintaining Indonesia's new, varied fleet.
Regardless of Indonesia's new defense engagements with China and Turkey, relations between Jakarta and Washington remain cordial, as evidenced by Prabowo's participation among world leaders at the Gaza Peace Summit in Egypt, which was convened by US President Donald Trump.
Though the two leaders have yet to hold a formal bilateral meeting, they appear to have a personal rapport. A hot mic incident during the Gaza summit captured a controversial exchange: Prabowo was overheard asking the US leader to put him in touch with one of his sons to discuss the advancement of the Trump family's business ventures in Indonesia.
Whatever the rationale behind the request, the incident underscored the friendly dynamic between the two leaders, hinting that Indonesia-US relations remain warm, even as Prabowo fields partners eastward.
