Between Celebration and Change – Pressures Increase (Introduction of March 2025 Report)
This month, our report is completed at a time when Indonesian society is celebrating Idul Fitri, the festivities that mark the end of the holy Ramadan month (the fasting month for Muslims). In fact, the holiday period started on 21 March 2025 for school-children, while society as a whole has an official national holiday from 28 March to 7 April 2025.
For our report this has implications too, as key institutions that deliver crucial data are closed during that period. For example, in normal circumstances, the Statistical Agency of Indonesia (Badan Pusat Statistik, or BPS) releases economic data quickly after the start of a new month. This time, however, we cannot access that data before the release of our monthly report, implying some stories are missing in this March 2025 edition. For example, the inflation data of Indonesia are only scheduled to be published on 8 April 2025 by BPS. We plan to send a separate analysis of Indonesian inflation to subscribers in the days after the official data have been released.
Continued Volatility
Moreover, during this holiday (when markets are closed) significant external events happened. At the time of writing, US President Donald Trump announced new tariffs, which is bound to spark another round of steep volatility in global financial markets. Trump announced an (at least) 10 percent tariff on all goods shipped into the US, with significantly higher tariffs for some of the US's closest trading partners. While it could be the case Trump uses this shocking announcement as a strategy to engage in negotiations, various countries (and blocs) already announced countermeasures, suggesting global trade is set to experience a stormy period ahead.
Among the US tariffs are a 20 percent tariff on goods originating from the European Union (EU), a 34 percent tariff on Chinese imports, a 32 percent tariff on Indonesian products, and a 46 percent tariff of products from Vietnam (see the chart below).
This is of course bad news for Indonesia as it ships quite some exports to the United States. In full 2024 Indonesia exported a total of USD $248.83 billion worth of (non-oil and gas) products, USD $26.31 billion of which went to the US. So, in other words: around 10 percent of Indonesian exports go to the US. This also means that if there is a decline in demand from the US for Indonesian products, then it certainly impacts on Indonesia’s entire trade balance.
The only positive thing here might be that Vietnam and Cambodia (countries where a lot of Chinese companies moved in recent years in an attempt to avoid higher US tariffs, and which are countries that form major competitors of Indonesia in terms of exports to the US), face even higher tariffs, suggesting that the competitiveness of Indonesian products might perhaps somewhat improve relative to that of (some of its) competitors in the Asian region. It remains to be seen how this plays out.
Still, overall, these US tariffs are bound to be negative for Indonesia (particularly in case a global tariff war triggers a global economic recession). Moreover, amid great global uncertainty, the rupiah is weakening, thereby making imports into Indonesia more expensive for Indonesian consumers and businesses. This causes concern over imported inflation.
And, we might also need to brace for the response in Indonesia’s stock market once it re-opens on 8 April 2025. Due to the long national holiday, this market is closed in Indonesia between 28 March and 7 April 2025. So, 8 April 2025 could be a very bad day for Indonesian stocks as that is the first day investors can respond to the news.
Domestic Developments
Regarding domestic economic developments in Indonesia, while Idul Fitri festivities are still ongoing, Indonesian media is reporting about a disappointing flow of people in the context of Idul Fitri, which suggests missed opportunities for the Indonesian economy. Typically, a big money rotation is triggered around the country because of the enormous movements that occur (triggering the annual peak in consumption).
This year, however, the flow of money and people might perhaps be disappointing. Media link this matter to weak purchasing power. However, we will wait for official data before making conclusions on this matter.
What is also interesting is that we detect growing criticism in Indonesian media on Indonesian President Prabowo Subianto’s performance as head of state. Criticism is related to remarkably weak government revenue collection in the first two months of 2025 (which is particularly blamed on the introduction of a new platform called Core Tax administration system), the risky Danantara sovereign debt fund (which we discussed last month), budget cuts to finance the free nutritious lunch program, and a revision to the country’s Army Law (discussed in this report).
Key Topics in Focus
In this March 2025 report we present a couple of very interesting stories. Firstly, the revised Army Law. Is it indeed as controversial as presented in Indonesian media? Do we detect a return to Suharto’s military-backed authoritarian New Order regime in terms of the role of the Indonesian army in Indonesian society?
Secondly, we take a detailed look at the palm oil sector of Indonesia. On the one hand the expansion of oil palm plantations is concerning as it has a negative impact on the environment. On the other hand, these oil palm plantations provide jobs for millions of (near) poor Indonesians, while also generating billions and billions of US dollars in export earnings each year. When you are financially secure, it is certainly easy to criticize the palm oil sector. However, when you struggle to survive and struggle to pay for food or for your children’s tuition fees, then concern over the environment certainly takes a back seat.
Thirdly, despite not having all economic data at hand due to the national holiday, we present an analysis (as we do every month) of the latest available economic data to see how the macroeconomy of Indonesia is performing in the first quarter of 2025.
Fourthly, we zoom in on Indonesia’s role in the global coal mining sector, and how it may need to be adjusted in a changing international environment. In many respects, there is overlap between coal and palm oil, in the sense that despite Westerns efforts to curb their use, these commodities continue to be in high demand across the world.
Interestingly enough, Indonesia’s biggest export items involve coal and palm oil. So, Indonesia plays this influential role on the global stage but at the same time is rather dependent on both commodities in terms of exports and foreign exchange earnings. It is therefore important for Indonesia to adjust amid this changing global context in order to maximize future earnings from both commodities.
Richard van der Schaar, MA Indonesian Studies
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This is the introduction of the March 2025 report. The full report (an electronic report, PDF, in English) can be ordered by contacting us through email and/or WhatsApp:
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