The Indonesian government recently announced a bold economic package of fiscal incentives and social support aimed at easing household pressures, supporting small businesses, and stimulating growth. The plan includes food aid, internships for graduates, tax breaks for micro and small enterprises, and a 200 trillion rupiah ($11.9 billion) injection into state banks to fund cooperative lending.
While this package will offer short-term relief, questions remain about its long-term impact. Can it boost demand, attract investment, and build sustainable growth – or will it create new risks for Indonesia’s economy?
The package seems initially aimed at providing short-term relief for the Indonesian public. More than 18 million households will receive rice aid, graduates will gain access to 20,000 paid internships, and small businesses will enjoy a continued low tax rate. Cash-for-work programs are also expected to employ hundreds of thousands of people in infrastructure projects. Together, the initiatives and support provide relief to struggling households and show that the government is willing to step in quickly when pressure builds on the ordinary Indonesian.
In addition to the 200 trillion rupiah injection into the state banking sector, the incentives and support under the package include a 16.23 trillion rupiah ($968 million) stimulus package announced for late 2025–2026; the distribution of 10 kilograms of rice to 18.3 million households in October and November 2025; the creation of an expected 600,000 jobs through cash-for-work programs; the creation of 20,000 internships for university graduates; the extension of a special 0.5 percent tax rate for small businesses until 2029; and the earmarking of 870,000 hectares for replanting projects that could create 1.6 million jobs.
Though valuable for short-term relief, the incentives and social support inevitably lead to the question: what happens when they expire?
Handouts and tax cuts may ease pressure in the short term, but they cannot create lasting economic strength on their own. Businesses expand and hire only when confident that consumer demand will hold beyond the timeframe of temporary programs. Without that confidence, growth could falter once the incentives expire, leaving the economy unchanged. Lasting growth depends on steady consumer demand, supported by robust investment and productive industries. If these incentives and support are paired with reforms that improve infrastructure, streamline licensing and permitting, provide legal certainty and strengthen worker training, Indonesia could attract the capital and innovation needed to place its economy onto a stronger path, helping to create lasting demand.
FDI Growth and Structural Barriers
From 2020 to 2025, Indonesia’s foreign direct investment has generally risen, moving from a pandemic slowdown in 2020 to strong inflows in 2021 and 2022, a brief dip in 2023, and then a record surge of more than $55 billion in 2024. The first half of 2025 showed both promise and weakness, with a strong first quarter followed by a decline in the second quarter, reflecting both global uncertainty and domestic bottlenecks. This pattern highlights the fact that while Indonesia has been able to attract large amounts of foreign capital, much of it is concentrated in resource-based sectors such as metals and mining, leaving other areas underdeveloped.
While the announced incentives and support for small shops and cooperatives help strengthen communities, they do little to remove the barriers that keep global investors on the sidelines. Large international companies continue to weigh infrastructure quality, regulatory predictability, and legal certainty before committing capital. Unless broader reforms accompany these incentives and social support, Indonesia risks relying too heavily on commodity-driven inflows and may struggle to attract the level of long-term investment needed to diversify its economy and raise productivity. To build lasting consumer demand and drive innovation, Indonesia must pursue reforms outside the commodity sector.
Perhaps the most concerning part of the package is to channel around 200 trillion rupiah into state banks for loans to village cooperatives. This program may stimulate local growth by funding small industries, supporting trade, and creating jobs; however, many cooperatives lack collateral and financial management skills, making defaults a real possibility. If too many loans go unpaid, state banks could be saddled with bad debt, potentially forcing taxpayer-funded bailouts. Therefore, the success of this program will depend on execution: with strong oversight and careful monitoring, the funds could empower communities; without it, they risk becoming another strain on Indonesia’s financial system.
Beyond bad loans and weak investment, other hidden risks lurk in the background. Extra cash in circulation may push up prices for food and goods, which would limit the benefits of the package for households. Even with promises to keep the budget deficit under control, failed programs or rising defaults could increase public debt over time. There is also the danger that once the relief expires, the economy could quickly return to its earlier challenges. On top of that, by routing huge sums through cooperatives and state banks, the program risks being misused for political favors instead of driving genuine development.
What It Will Take to Succeed
For now, the relief will provide some breathing space for many Indonesians. The incentives and support will soften the blow of inflation, help households manage, and support small businesses through a tough economic climate. But relief is not the same as reform. Indonesia’s real test lies in whether it can turn this short-term relief into long-term progress.
For this package to be effective, the government must tighten oversight of cooperative lending to prevent defaults and complement short-term relief with long-term reforms in business licensing, deregulation, taxation and judicial systems, labor markets, and land regulations. Support should also be tied directly to local producers so that spending supports domestic industries rather than imports. Foreign investors, meanwhile, would need clear and stable policies and regulations in strategic sectors such as manufacturing, transport, agriculture, renewable energy, mining, and technology. In conclusion, a clear exit strategy is essential to transform short-term relief into structural reforms that draw investment, raise productivity, and strengthen financial stability, instead of becoming tomorrow’s risk.