The recent economic headlines in Indonesia have been pessimistic to say the least. There are serious concerns that President Prabowo Subianto’s signature social development initiatives – the free nutritious meals (Makanan Bergizi Gratis, “MBG) program and the Red-White Village Cooperatives (Kopdes Merah Putih) – are straining the national budget and will limit long-term growth. The president’s reluctance to abandon or significantly downsize these programs has helped inspire protests in June against an agenda which many fear is “bankrupting Indonesia.” Protestors and investors alike have additional complaints about Indonesia’s policy trajectory, including creeping militarization of the civil service, state control over key commodities sectors, and weaponization of the legal system against the government’s political opponents. Amidst the uncertainty, the rupiah and the Indonesian stock market have also experienced major slides, with the currency hitting an all-time low against the U.S. dollar on June 8 and the Jakarta Composite Index falling 36 percent from a record high in January.
Despite the serious economic headwinds, there are still opportunities for investors in the Indonesian economy, particularly in the energy sector. Indonesia ranks among global leaders in terms of energy potential and has recently improved its regulatory environment for international developers in upstream oil and gas as well as renewables. Major agreements are being signed and capital is being deployed by leading international energy companies. This momentum in domestic energy production and exploration is unfolding against the backdrop of renewed conflict in the Middle East, which has sharpened investor and policymaker focus on the risks of import dependence across the APAC region.
Recent studies have estimated that the country has technical renewable energy potential of 3,686 GW, with hundreds of suitable locations for solar, wind and hydropower facilities. To tap more of this potential, the Indonesian government has set a target energy mix of 35 percent from renewables, up from the current level of 18 percent, by 2035. However, Indonesia’s proven oil and gas reserves are also immense, totaling 2.33 billion barrels and 34.8 Tcf respectively. To utilize these reserves, Indonesia has opened 116 new oil and gas blocks to global investors.
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