Indonesia’s Restrained State Capitalism: Development and Policy Challenges

From the mid-2010s, the Indonesian government began to strengthen its direct participation in the economy by investing significantly in and via state-owned enterprises. Since the ownership reorganisation of state enterprises has been slow in the past, the government continues to hold a large portfolio of companies in diverse industries. Fiscal space was created after reducing fuel subsidies, enabling the government to inject a large amount of capital into state enterprises. The government’s control over the financial industry has also contributed to state enterprises’ expansion. However, state capitalism looks quite different now than the period before the Asian economic crisis. Economic and political changes of the past two decades have resulted in various domestic forces keeping the government’s aggressive mobilisation of state enterprises in check. Therefore, the recent state enterprise-centred development strategy in Indonesia can be described as “restrained state capitalism.”.