WRAPUP 1-Indonesia unveils ambitious targets, tightens commodities grip in pursuit of 'magnificent prosperity'

​Indonesia's president unveiled ambitious economic targets for 2027 on Wednesday and a plan to boost revenue with state control of top commodity exports, as he faces sagging investor confidence amid growing unease over policymaking.

Prabowo Subianto's government has come under intense scrutiny this year over its handling of the $1.4 trillion economy and moves to expand the state's role, with the rupiah repeatedly hitting record lows against ‌the dollar and investor jitters over central bank independence, capital market transparency and the president's ambitious spending plans. Pressure on the rupiah prompted Indonesia's central bank to hike interest rates for the first time in two years on Wednesday, by an unexpected 50 basis points, in a move to support a currency it said was hit by volatility due to the impact of the Iran war.

The central bank has ramped up its currency interventions, contributing to a decline of about $10 billion in Indonesia's foreign exchange reserves in the year to ‌April, with the rupiah down 6% against the U.S. dollar so far in 2026, among the worst performing currencies in emerging Asia. In a rare speech to parliament, Prabowo announced a tightening of the state's grip over the abundant natural resources of ‌Indonesia - the world's top exporter of palm oil and thermal coal - by selling certain commodities via a government enterprise, in a bold gamble to arrest what he said were revenue losses of $908 billion over the past 34 years.

"I'm sure every patriot will support this - the earth, water, and all the resources within must be enjoyed by all Indonesians," Prabowo said. 'NEW LAYER OF POLICY RISK'

Rumours about the plan had spooked the market on Tuesday, with Indonesia's main stock index shedding 3.5%, with concerns it could lead to changes in pricing mechanisms and squeeze trader margins. Deepali Bhargava, ING's Asia-Pacific research head, said Prabowo's new commodities venture ⁠could cause uncertainty ​and disruption in domestic supply chains and only add to lingering policy concerns ⁠about Indonesia.

"In practice, it introduces a new layer of policy risk at a time when investor sentiment is already fragile," she said. "If implementation proves cumbersome, Indonesia risks eroding its competitiveness and losing market share to more flexible suppliers."

The retired general's rise to power, at the third attempt, after a landslide election ⁠win in 2024 sparked fears among investors that his ambitious big-spending, big-growth agenda could undermine the G20 economy's hard-won reputation for fiscal prudence. Prabowo's fiery address follows a turbulent few months for Indonesia, with Moody's and Fitch earlier cutting their credit rating outlooks to negative from stable, citing reduced policymaking credibility ​and predictability, and concerns about a potential breach of a longstanding fiscal deficit ceiling.

In January, global index provider MSCI had flagged transparency issues, warning of a possible downgrade of Indonesia to frontier market status, which triggered a ⁠market rout of more than $120 billion. PRABOWO TARGETS LOWER FISCAL DEFICIT

A potential revision to the fiscal deficit limit of 3% of GDP has undermined confidence in Indonesia, as Prabowo forges ahead with costly welfare projects, such as his flagship $20 billion free school meal programme, despite weak revenue collection. In a speech that lasted more than 90 minutes, ⁠Prabowo ​set a target for the 2027 fiscal deficit of between 1.8% and 2.4% of GDP, sharply lower than the finance ministry's 2.9% outlook for this year.

He announced a GDP growth target for next year of between 5.8% and 6.5% with inflation at 1.5% to 3.5%, and pledged to boost food self-sufficiency and reform institutions to attract investment, while ensuring a place for the private sector in an increasingly state-oriented economy. "If we stay united and work together, private companies, SMEs, governments, regional or central, everyone has ⁠the same calling - we can create magnificent prosperity," Prabowo said.

The plan to centralise commodity exports will have a three-month transition period and would initially apply to coal, palm oil and ferroalloys, with a government evaluation every three months to see which ⁠commodities could be added, Chief Economic Minister Airlangga Hartarto said. Exports will be ⁠done through a state-appointed trading company, overseen by the sovereign wealth fund Danantara Indonesia, which was launched during Prabowo's presidency.

In a further measure, from June 1 all exporters of natural resources must store 100% of their export revenues in state-owned banks, Airlangga said, a move to support the plummeting rupiah. Indonesia's central bank Governor Perry Warjiyo said Wednesday's rate hike, market intervention and moves ‌to attract capital inflows would help stabilise the ‌rupiah.

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