Political Economy / Emerging Markets

Indonesia Under Prabowo: The Construction of a New Political-Economic Order

A Strategic Assessment of Indonesia’s Transformation

Updated through 22 June 2026

Executive Summary

Indonesia is no longer in a simple post-Jokowi transition. It is in the middle of a political-economic restructuring.

President Prabowo Subianto has largely completed the first stage of power consolidation and is now building a new state-capital architecture centered around Danantara, state-owned enterprises, strategic commodity oversight, and controlled elite alignment.

Prabowo is not only governing Indonesia. He is rebuilding the operating system through which power, capital, licenses, and strategic projects flow.

The old Jokowi-era model relied heavily on infrastructure, private conglomerates, Chinese-linked capital, and negotiated oligarchic participation. The emerging Prabowo model is more centralized, more state-led, more nationalist, and more disciplined.

This does not mean the old conglomerates disappear. They are too large, too embedded, and too useful. But their role is changing. They are moving from agenda-setters to participants inside a state-defined framework.

The clearest institutional proof is Danantara. Launched in February 2025, Danantara was initially presented as a sovereign investment vehicle. By June 2026, it has become much more: a state-capital platform, SOE coordinator, development-finance arm, strategic project vehicle, and potentially a mechanism for commodity export oversight.

The next test is no longer political control. That battle has largely been won. The next test is performance: Can Danantara execute? Can the state deliver growth? Can commodity oversight increase revenue without damaging private confidence? Can Prabowo keep inflation, food prices, and the rupiah under control? Can the system deliver enough before 2029?

If yes, Prabowo’s model could dominate Indonesia into the 2030s. If not, the same centralization that gives him power today may become the main source of criticism tomorrow.

1. Key Findings

1.1 Confirmed Developments

• Prabowo took office on 20 October 2024 after winning the 2024 presidential election.
• The Red and White Cabinet created one of the largest cabinet structures in modern Indonesian history, giving Prabowo broad political coverage and coalition control.
• Danantara was launched in February 2025 with a mandate to manage more than US$900 billion in state assets and deploy capital into strategic sectors.
• Danantara’s mandate expanded in June 2026 through a presidential decree establishing a development investment arm.
• Danantara Sumberdaya Indonesia (DSI) was introduced as part of a plan to oversee strategic commodity exports, initially including coal, palm oil, and ferroalloys.
• Danantara completed a US$1.5 billion debut international bond issuance in June 2026, with orders of approximately US$4.6 billion.
• Danantara is increasingly being used to support Prabowo’s broader nationalist development agenda, including industrial projects, food programs, development finance, and strategic economic initiatives.

1.2 Assessment

Indonesia is moving from a system where the state regulated capital toward a system where the state increasingly allocates capital. This is the core change.

The country is not becoming communist, anti-market, or anti-business. It is becoming more state-directed. Private capital is still needed, but it is being forced into a more disciplined relationship with the state.

The new message to business is simple: You can make money, but not independently of the state’s strategic priorities.

1.3 Market Observation

Business behavior appears to confirm this shift. Market participants increasingly report that old Jokowi-linked channels are less decisive, state entities are appearing earlier in strategic deals, “national interest” language is becoming more important, large conglomerates are repositioning, and access to Danantara, SOEs, BKPM, ESDM, and the presidential economic circle matters more than before.

This cannot always be proven through public documents, but it is consistent with the institutional changes already visible.

2. Political Transformation

2.1 From Jokowi Continuity to Prabowo Control

The early assumption was that Prabowo would continue Jokowi’s political-economic model. That assumption is now incomplete.

Yes, Prabowo inherited parts of the Jokowi system: Gibran as Vice President, the infrastructure legacy, broad coalition support, and many continuing political actors. But he is not simply maintaining the old structure. He is absorbing it, weakening its independent centers, and redirecting it through new institutions.

2.2 The Jokowi Network

Jokowi remains relevant, but his power is now informal. His remaining leverage comes from Gibran’s vice presidency, regional networks, business relationships built during the infrastructure decade, and political memory among local elites.

But Jokowi no longer controls the executive machine. The power center has shifted.

2.3 Prabowo’s Political Objective

Prabowo’s objective is not merely to govern. It is to make the presidency the dominant broker between state capital, private capital, foreign capital, strategic sectors, security institutions, and political parties.

This is why Danantara matters so much. It gives the presidency an institutional vehicle to convert political authority into economic control.

3. Capital Transformation

3.1 The Old Model

The old Indonesian model was: government + major conglomerates + foreign capital + sectoral licenses + informal political protection.

In practice, large business families and conglomerates had significant influence over property, food, finance, infrastructure, logistics, commodities, retail, and industrial estates.

The so-called “Nine Dragons” label is not a formal organization. It is a political-economic shorthand for powerful Chinese-Indonesian business networks that grew out of older patronage structures. The important point is not whether the list is exact. The important point is that Indonesia has long had private conglomerates with enough economic weight to shape national development.

3.2 The New Model

The emerging model is: presidency → Danantara → SOEs → selected domestic capital → curated foreign capital.

This reverses the order. Instead of private capital leading and the state approving, the state increasingly frames the objective and private capital joins.

3.3 What Happens to the “Dragons”

The blunt assessment: the old conglomerates are not being destroyed. They are being domesticated.

They will still be rich. They will still own assets. They will still matter. But they will be expected to align, co-invest, buy state-linked instruments, and accept that strategic sectors are no longer theirs to control independently.

The removal of privileges from certain legacy projects, the rise of Patriot Bonds, and the expansion of Danantara all point in the same direction: the state is disciplining independent capital without openly expropriating it.

4. Institutional Changes

4.1 Danantara

Danantara is the institutional center of the new system. Officially, it is a sovereign investment vehicle and state asset manager. In practice, it is becoming an SOE holding coordinator, strategic investment platform, development finance vehicle, industrial policy executor, capital market signal, and political-economic operating system.

This is why it must be treated as more than a fund.

4.2 Why Danantara Is Different

Temasek manages assets commercially. Khazanah supports national development and investment. Saudi PIF drives national transformation. Danantara appears to borrow from all three models, but with an Indonesian political character.

It is not purely commercial. It is not purely developmental. It is not purely sovereign wealth. It is hybrid. That creates both power and risk.

4.3 DSI

Danantara Sumberdaya Indonesia is potentially the most important 2026 development.

Initial sectors include coal, palm oil, and ferroalloys. The government explanation is to stop under-invoicing, reduce transfer pricing, improve state revenue, increase foreign exchange retention, and increase transaction transparency.

Business concerns include contract uncertainty, implementation risk, pricing control, bureaucracy, and possible future expansion to other commodities.

The government has clarified that DSI will not take over existing contracts. That matters. But even if DSI acts only as an oversight platform, it still marks a major change. The state wants visibility into commodity flows. That is the key point.

5. Winners and Losers

5.1 Institutions Gaining Power

• Presidency: becoming the central coordinator of political and economic authority.
• Danantara: the biggest institutional winner, absorbing capital, mandate, visibility, and strategic function.
• SOEs: gaining importance as the operating arms of the new model.
• BKPM / Investment Ministry: becoming more important as foreign capital must be packaged into national priorities.
• ESDM: central because the new model depends heavily on commodities, downstreaming, export controls, and industrial energy.
• Coordinating Economic Ministry: critical for macroeconomic coordination, tariff decisions, fiscal balance, and cross-ministry alignment.

5.2 Institutions Losing Relative Power

• Independent private conglomerates: not disappearing, but losing autonomy.
• Legacy Jokowi brokers: networks that depended mainly on Jokowi-era access are becoming less reliable.
• Pure financial investors: capital without political utility has less leverage.
• Weak ministries: ministries without direct connection to strategic capital, SOEs, or national priority sectors lose relevance.
• Foreign capital that wants control: foreign investors are welcome, but less welcome if they demand control of strategic assets.

6. Business Groups: Who Adapts, Who Gets Pressured

6.1 Groups That Can Adapt

Large conglomerates that accept the new order can survive well. They will do this by buying state-linked instruments, entering SOE partnerships, supporting national projects, avoiding open confrontation, and accepting minority or co-investor roles in strategic sectors.

The smartest old groups will not fight the state. They will reposition as partners of the state.

6.2 Groups Under Pressure

Business groups face pressure if they are perceived as too independent, too close to Jokowi-era patronage, too connected to Chinese capital, too dominant in strategic land or infrastructure, too resistant to state participation, or too exposed to regulatory or permit review.

This pressure does not need to be public. It can appear as slower permits, project reviews, loss of strategic status, new compliance requirements, financing difficulty, or quiet pressure to bring in new partners.

6.3 Chinese Proxy Capital

This is sensitive, but important. Indonesia is not removing Chinese capital. China remains too important in nickel, smelting, infrastructure, and supply chains.

But the model is changing. The direction appears to be that Chinese technology and capital can remain, but Chinese control becomes less acceptable in strategic sectors.

The preferred future structure is Indonesian state or SOE control, Danantara participation, Chinese technical or minority role, and additional balancing capital from Gulf, Japan, Korea, India, or Western sources. This is de-risking, not decoupling.

7. Strategic Sector Analysis

7.1 Commodities

Strategic commodities are now at the center of state control. Priority areas include coal, palm oil, nickel, ferroalloys, copper, bauxite/alumina, and energy-linked minerals.

The logic is simple: commodities generate foreign exchange, fiscal revenue, and political leverage. The state wants tighter visibility.

7.2 Downstreaming

Downstreaming remains a core national strategy. The objective is to stop exporting raw materials and capture more value domestically.

Priority areas include nickel processing, aluminum, alumina, refining, biofuels, petrochemicals, battery materials, and food processing.

7.3 Food Security

Food security is both economic and political. Prabowo has long treated food as a sovereignty issue. This explains the importance of free meal programs, agricultural processing, poultry projects, domestic food supply chains, fertilizer, and logistics.

But this is also a fiscal risk. Large social programs can pressure the budget if execution is weak.

7.4 Energy Security

Energy is central because industrialization requires power. Key areas include PLN, Pertamina, coal transition, renewables, biofuels, grid investment, and industrial power supply.

7.5 Infrastructure and Urban Projects

Infrastructure remains important, but the Jokowi-style infrastructure boom is changing. The new focus is less about building everything and more about funding strategic projects that serve the state-capital model.

7.6 Capital Markets

Capital markets are a weak point. The MSCI transparency concerns in 2026 show that foreign investors remain nervous about governance, shareholding transparency, and market integrity.

This is the contradiction of the Prabowo model: the state wants more control, while markets want more transparency. Managing that tension is critical.

8. Future Scenarios Through 2029

9. Risks

9.1 Governance Risk

Danantara’s biggest risk is opacity. If it controls too much without transparent reporting, investors will begin to price governance risk into Indonesia.

9.2 Execution Risk

The institution is being asked to do too many things too quickly. Investment management, development finance, commodity oversight, food programs, strategic projects, and public service support are very different functions.

A fund can do some of these. A state machine can do all of them only if governance is strong.

9.3 Fiscal Risk

Prabowo’s social and development ambitions are expensive. The free meals program, infrastructure, downstreaming, and state-led investment all require funding. If revenue does not rise fast enough, fiscal pressure increases.

9.4 Market Confidence Risk

The MSCI issue shows that foreign investors are sensitive to transparency. A more interventionist model must still maintain capital market credibility.

9.5 Elite Resistance Risk

Old capital may not openly oppose the system, but it can slow-walk cooperation, move capital offshore, or wait for political change.

9.6 Commodity Disruption Risk

If DSI oversight disrupts exporters, Indonesia could damage one of its strongest sources of foreign exchange.

9.7 Succession Risk

If Prabowo wins a second term, succession planning becomes the central issue from 2031 onward. If he does not clearly manage succession, factions will start positioning early.

10. Strategic Implications for Investors

10.1 Do Not Treat Indonesia as a Pure Market Economy

Indonesia is moving toward a more state-directed model. The right question is not only: is the project profitable? The right question is: does the project fit the state’s strategic agenda?

10.2 Find the State Counterparty Early

For strategic sectors, investors should identify the relevant state counterpart before committing capital. Possible counterparts include Danantara, SOEs, BKPM, ESDM, state banks, and relevant coordinating ministries.

10.3 Avoid Being Seen as Independent Foreign Control

Foreign capital should position as a technology provider, minority partner, financing partner, export access partner, or industrial capability partner — not as the controlling force.

10.4 Watch the Old Conglomerates Carefully

Old conglomerates still matter, but investors should ask: Are they aligned with Prabowo? Are they accepted by Danantara? Are they under quiet pressure? Are their projects still politically protected? Are they adapting or resisting?

10.5 Governance Premium Will Matter

Projects with clean reporting, transparent structures, and clear state alignment will receive better treatment from serious capital. Opaque deals may still happen, but they will carry higher political risk.

11. Monitoring Indicators: Next 12–24 Months

Danantara

• Publishes consolidated financials or not
• Clarifies governance structure
• Delivers first major investment outcomes
• Expands mandate further
• Issues additional bonds

DSI

• Transition period implementation
• Exporter compliance burden
• Whether more commodities are added
• Impact on coal and palm oil flows
• Pricing benchmark disputes

Markets

• MSCI decision and follow-up
• Foreign equity flows
• Rupiah performance
• Bond yields
• Rating agency outlook

Politics

• Coalition discipline
• Jokowi-Prabowo relationship
• Gibran’s role
• Golkar positioning
• Regional elite alignment

Economy

• GDP growth
• Inflation
• Food prices
• Fiscal deficit
• Employment
• Household purchasing power

Business Behavior

• Which tycoons buy state instruments
• Which projects lose privileges
• Which groups enter SOE partnerships
• Which foreign investors receive fast-track treatment

12. Conclusion

Indonesia under Prabowo is undergoing a structural shift. The country is moving away from a system dominated by negotiated oligarchic capitalism and toward a more centralized state-capital model.

The old conglomerates are not gone. Chinese capital is not gone. Jokowi’s network is not gone. But all three are being forced into a new hierarchy.

At the top now sits the presidency. Below it sits Danantara. Below that sit SOEs, aligned domestic capital, and curated foreign partners. This is the new architecture.

The opportunity is significant. If it works, Indonesia could accelerate industrialization, improve state revenue, and create a more coherent national development strategy.

The risk is equally significant. If it fails, Indonesia could end up with more bureaucracy, weaker private confidence, opaque capital allocation, and growing market distrust.

The next three years will decide whether Prabowo’s model becomes a durable Indonesian developmental state or simply a more centralized version of old patronage politics.

Prabowo has won control. Now he must prove the system can deliver.

References

1. Reuters, 24 February 2025 — Indonesia formally launches Danantara; Prabowo announces US$20 billion investment plan and more than US$900 billion in assets under management.
2. Reuters, 1 June 2026 — Presidential decree establishes new development investment arm within Danantara.
3. Reuters, 1 June 2026 — Indonesia begins transition toward centralized commodity export oversight through Danantara Sumberdaya Indonesia.
4. Reuters, 11 June 2026 — Danantara COO explains DSI’s role in overseeing exports of coal, palm oil, and ferroalloys.
5. Reuters, 12 June 2026 — Danantara clarifies DSI will not take over existing commercial contracts.
6. Reuters, 12 June 2026 — Danantara raises US$1.5 billion in debut international bond issuance with approximately US$4.6 billion in orders.
7. Reuters, 19 June 2026 — Reuters analysis: Prabowo taps Danantara to drive agenda, testing the fund’s capacity and independence.
8. Reuters, 18 June 2026 — MSCI raises transparency concerns regarding Indonesian equities and market structure.
9. Reuters, 19 June 2026 — Indonesia scales back and refocuses free meals program amid budget and execution concerns.
10. Reuters, 17 January 2025 — Indonesia requires additional budget to expand Prabowo’s free meals program.
11. Reuters, May 2026 — MSCI removes Indonesian stocks from index review and flags market transparency concerns.
12. Financial Times, 2025 — Indonesian tycoons line up for Patriot Bonds issued through Danantara.
13. Reuters, August 2025 — Danantara and China’s GEM announce nickel processing hub development in Indonesia.
14. Reuters, January 2026 — Danantara CIO says fund may deploy up to US$14 billion in 2026 investments.
15. Jakarta Post, October 2025 — Government removes PIK 2 from National Strategic Project list.
16. Public reporting and Indonesian political references on the Red and White Cabinet structure and Prabowo’s cabinet composition.
17. Public references on the “Nine Dragons” term as an informal label for influential Indonesian business networks, with no official membership list.