What happens when your capital city is literally sinking, your president has a history straight out of a political thriller, and your economy is walking a tightrope?
Welcome to Indonesia in 2024—a country in the middle of a dramatic transformation.
Jakarta is sinking at an alarming rate, the government is racing to build a brand-new capital in the middle of a jungle, and newly elected President Prabowo Subianto is making some of the boldest (and riskiest) policy moves in recent history.
With massive welfare programs, huge budget cuts, and a growing dependence on China, Indonesia is at a crossroads. Will these big bets pay off, or are they setting the country up for an even bigger crisis?
Let’s break it all down—from power struggles and controversial elections to billion-dollar infrastructure projects and economic risks. Buckle up, because this is Indonesia like you’ve never seen before.
Table of Contents
Prabowo Takes Over Indonesia
1. In October 2024, Prabowo—born into one of the country’s most prestigious families—took office as President.
2. His father was an economist who studied in the Netherlands and served as Minister of Industry and Trade, Finance, and Science and Technology, coming from a traditional conglomerate-owning family.
3. After graduating from the elite Army Academy, Prabowo served in special forces, claiming credit for killing East Timor’s second president, Lobato.
4. His privileged background and aggressive style appealed to Indonesia’s dictator Suharto. Prabowo married Suharto’s second daughter, becoming his son-in-law.
5. Suharto maintained a 32-year dictatorship beginning in 1966.
6. From key positions in the military, Prabowo took the lead in punishing soldiers and politicians who criticized Suharto’s long rule.
7. At one point, hedge funds launched a financial assault on Indonesia.
8. This attack happened in late 1997, during the Asian financial crisis.
9. (I’ll cover the details in a future Economic & Financial Crisis series.)
10. Indonesia couldn’t fend off the hedge fund attacks, triggering a foreign exchange crisis.
Turmoil Strikes and a Dictator Falls
11. Its currency value soared five times over, and economic growth plunged to minus 13%.
12. With the crisis worsening, the public lost faith in the dictatorship’s promise of prosperity and began large-scale protests.
13. As anti-government demonstrations intensified, Prabowo kidnapped and even killed dissidents to help preserve Suharto’s regime.
14. He abducted and detained 22 pro-democracy activists demanding an end to the dictatorship. Of those 22, 13 remain missing 28 years later.
15. When the military killed four student protesters, Jakarta descended into chaos, forcing Suharto to resign on May 21.
16. After Suharto stepped down, Prabowo divorced Suharto’s second daughter and fled to Jordan.
17. He used his accumulated wealth and connections in Jordan to reinvent himself as a businessman.
18. Three years later, he returned to Indonesia, ran 27 companies, and entered politics.
19. Because he was Suharto’s son-in-law and had led many harsh crackdowns, he struggled to gain broader support.
20. Hoping to ditch his “dictator’s son-in-law” image, he funded the Jakarta governor campaign of progressive politician Joko Widodo (Jokowi).
21. Jokowi proved successful as governor, gained national recognition, and ran for president—creating friction with Prabowo.
22. In the 2014 presidential election, Prabowo challenged Jokowi but narrowly lost with 46.8% of the vote.
Election Frenzy and Shifting Alliances
23. Indonesia has 11 minor parties competing for influence.
24. In the 2019 election, Jokowi led a coalition of four progressive parties, while Prabowo united seven conservative ones.
25. Prabowo lost again, earning 44.5% and taking second place behind Jokowi.
26. During cabinet formation, President Jokowi needed the support of conservative parties and named Prabowo Defense Minister.
27. While he served as Defense Minister under Jokowi, Prabowo was clearly positioning himself as the opposition’s candidate for the 2024 presidential race—his third attempt.
28. Prabowo wanted to stall the KF-21 joint fighter jet project that Jokowi had signed with South Korea, hoping to boost the military in his own way for political credit.
what is “KF-21” ?
The KF-21 is a modern fighter jet project led by South Korea, initially partnered with Indonesia. Often called a “4.5-generation” plane, it’s designed to be more advanced than older jets like the F-16, but less expensive than full stealth fighters such as the F-35. It’s basically South Korea’s step toward greater self-reliance in military aviation while still offering strong, up-to-date combat capabilities.
29. Indonesia’s main reasons for joining the KF-21 project were to obtain fighter jet development know-how and secure 48 KF-21 jets.
30. By contributing about 1.7 trillion won, Indonesia was to receive a prototype jet and produce 48 KF-21s domestically.
31. Once he became Defense Minister, Prabowo switched plans from building those jets in Indonesia to importing finished aircraft.
32. He also stopped the payments Indonesia was supposed to make to South Korea for its share of the program.
33. In short, he aimed to extract the technology from South Korea while pursuing Russia’s Su-35 or France’s Rafale fighter jets.
34. Indonesia’s delayed KF-21 payments largely stemmed from Defense Minister Prabowo’s maneuvering ahead of the next election.
Third Time’s a Charm: Another Election
35. On February 14, 2024, Indonesia held its presidential election.
36. Making his third run, Prabowo decided to join forces with President Jokowi.
37. He picked Jokowi’s eldest son as his running mate for vice president.
38. With Jokowi’s approval around 70%, Prabowo secured victory with 58%.
39. Jokowi was criticized by progressive thinkers for helping install his son as vice president.
40. By law, presidential and vice-presidential candidates must be at least 40 years old in Indonesia.
41. Gibran, Jokowi’s son, was in his 30s, thus initially ineligible.
42. However, in October 2023, the Constitutional Court ruled that local government chiefs aren’t bound by the age limit.
43. Since Gibran was mayor of Surakarta in his 30s, he qualified under this new interpretation.
44. The Constitutional Court’s chief justice, said to be the First Lady’s younger brother, cast a decisive vote in a 5-4 ruling.
45. Indonesia’s most pressing issue is its capital sinking into the ground.
46. Jakarta is subsiding more and more, placing entire areas below sea level.
47. In the north, the city is sinking by about 25 cm per year—over 2.5 meters in the past decade.
48. At this pace, the presidential palace in Jakarta may be underwater by 2030.
49. Indonesia has decided to move its capital.
50. Jakarta’s subsidence isn’t simply a climate change story.
51. Back in 1900, its population stood at just 110,000. After becoming the capital, it surged past ten million.
52. The city was built on a marshy area where 13 rivers merge, yet the municipal water supply only reaches about 60% of residents.
53. With limited tap water, people drilled wells to pump groundwater, causing land to collapse.
54. Normally, rain replenishes groundwater.
55. But Jakarta’s heavy urban development, paved over with asphalt and concrete, stops rainfall from seeping underground.
56. Unable to recharge while millions keep pumping water, the land has buckled.
57. Groundwater itself is turning unusable.
58. As fresh water is extracted, seawater seeps into the empty spaces, making wells salty.
59. Indonesia ultimately decided to relocate its capital to Nusantara on Borneo Island.
60. Phase 1 involves building the presidential palace and housing for half a million government workers, with a budget of 32.7 billion dollars.
Big Plans Keep Rolling
61. More crucial than Phase 1 is the plan for Phases 2 and 3 from 2025 to 2045, marking two more decades of massive capital development.
62. Nusantara is a massive new capital project in Indonesia, spanning an area about as big as New York City plus Los Angeles combined and is reportedly modeled after South Korea’s Sejong City.
63. Although Korean builders are interested, thanks to their experience with new city construction, they’re waiting to see how Prabowo handles what the previous president started.
Money Matters and the “Free” Agenda
64. The biggest challenge is funding, yes Money.
65. The plan is to finance 20% publicly and 80% privately, but both sources are tricky to secure.
66. Prabowo’s “free” programs add more complications.
67. He introduced free school lunches for students nationwide and annual free health checkups.
68. That’s important, since many impoverished students skip lunch and over 10% of Indonesians have tuberculosis.
69. The problem is that Indonesia can’t afford both capital relocation and these “free” benefits at the same time.
70. If budget is tight, tax revenue must rise—but Prabowo canceled a planned VAT hike.
71. In 2021, Indonesia amended its tax laws to raise VAT from 11% to 12% on January 1, 2025, to curb deficits.
72. Right before implementation, Prabowo limited the VAT increase to private jets, yachts, and luxury housing only.
73. Because that scope is tiny, it won’t bring in much extra tax revenue.
74. Indonesia’s law caps the budget deficit at 3% of GDP.
74. With free meals, free checkups, and no major tax hike, analysts project a 2025 deficit of 3.1%—breaking the cap.
74. To stay under the limit, Prabowo cut 27 trillion won, about 8.4% of the government budget.
75. The Ministry of Public Works, in charge of relocating the capital, saw a 70% slash, meaning major infrastructure could grind to a halt.
76. As feared, Prabowo reversed Jokowi’s policy path.
77. Jokowi’s approach relied on attracting foreign investors and using business-friendly policies to spur GDP growth and jobs.
78. Prabowo focuses on boosting household income to drive consumer spending.
80. He’s lowering taxes and raising the minimum wage by 6.5% to give people more take-home pay.
81. After assuming office, he pledged to write off debts for farmers, fishermen, and small businesses, and build three million low-cost housing units per year.
82. Prabowo’s moves are popular, with his approval rating hitting 80.9%, surpassing Jokowi’s peak.
83. Though loved at home, foreign investors worry about ballooning deficits and a shaky credit profile.
84. Investors are pulling funds from Indonesia’s stock market, causing share prices to drop, even as Prabowo’s popularity climbs.
85. To fix the economy, Prabowo plans to partner with China, aiming to raise the growth rate from around 5% to 8%.
86. He joined BRICS, led by China and Russia, and made China his first state visit after taking office.
87. Arguing “bold debt drives growth,” Prabowo wants to amend the 3%-of-GDP deficit cap.
Alphazen insights
It’s the classic dilemma: grand visions meet empty pockets. As Indonesia tries to juggle a massive new capital, free lunches, and free checkups, it’s running into the same question that always crops up when spending outpaces revenue: “So, who’s going to pay for all this?” It’s a high-wire act, and everyone’s watching to see if Prabowo can keep Indonesia’s ambitious plans from crashing down.
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