The Indonesian Economy in Review (February 2026)

February 2026 will be remembered as a month in which Indonesia’s economic narrative was abruptly complicated by a geopolitical shock it did not create, whilst the domestic agenda churned forward with a familiar mixture of ambition, controversy, and incremental progress. The US-Israel military strikes on Iran on 28 February – an operation that US President Donald Trump described as targeting Iranian military capabilities – sent immediate tremors through global energy markets and Indonesian supply chains alike. Crude oil prices surged above 2 per cent on the day of the strikes, and Indonesian economists warned that Brent crude could approach US$100 per barrel if the Strait of Hormuz, through which approximately 20 per cent of global liquid oil consumption passes daily, were disrupted. Jakarta Governor Pramono Anung publicly flagged the risk of import-driven inflation in the capital, particularly concerning ahead of Ramadan and Eid al-Fitr. At Indonesia’s airports, the consequences were immediate: Qatar Airways suspended all flights from Doha after Iran launched retaliatory ballistic missile strikes against Gulf capitals, whilst Soekarno-Hatta International Airport saw cancellations by Etihad Airways, Emirates, and Garuda Indonesia, and four flights from Bali’s Ngurah Rai Airport to Dubai, Doha, and Abu Dhabi were disrupted. The conflict arrived at a particularly sensitive moment, coinciding with Pertamina’s announcement that non-subsidised fuel prices would rise from 1 March 2026 – Pertamax Green climbing from Rp12,350 to Rp12,900 per litre and Pertamina DEX jumping from Rp13,500 to Rp14,500 – whilst subsidised Pertalite and diesel remained unchanged.

Against this external turbulence, the government pressed ahead with a broad infrastructure agenda centred heavily on the 2026 Eid al-Fitr homecoming season. The Ministry of Transportation estimates that 143.91 million people – roughly 50.6 per cent of the population – will travel during the holiday period, with West Java producing the single largest cohort of travellers at 30.97 million and Central Java serving as the primary destination. Preparations dominated much of February’s domestic coverage. The Ministry of Public Works under Minister Dody Hanggodo committed to a “Zero Hole” directive, reducing potholes along the western Pantura (North Coast) highway from approximately 7,000 to 2,500 and targeting complete elimination by ten days before Eid. Six toll road sections totalling 198 kilometres across Sumatra and Java were designated for free use during the exodus, and PT ASDP Indonesia Ferry announced an equalised single-fare policy on the critical Merak-Bakauheni ferry crossing. PT Kereta Api Indonesia deployed additional rolling stock across multiple operational divisions, whilst PT Pertamina confirmed a 10 per cent discount on aviation fuel at 37 airports from 14 to 29 March as part of the government’s broader Eid stimulus package, which also included a 100 per cent VAT subsidy on plane tickets. Disaster mitigation featured prominently in transport planning: Transport Minister Dudy Purwagandhi repeatedly warned of unpredictable weather, and landslides in Central Java and West Nusa Tenggara severed several alternative routes, whilst the Public Works Ministry deployed pumps along flood-prone Pantura sections and accelerated sabo dam construction on the Aek Tukka River in Central Tapanuli.

Infrastructure investment beyond Eid preparations also generated significant headlines. The Batang Integrated Industrial Zone (KITB) in Central Java signed a memorandum of understanding to supply 180 megawatts of renewable energy with zero-interruption standards, positioning the national strategic project as Indonesia’s first fully green industrial hub and a target for semiconductor, petrochemical, and data centre investors. In Bali, the long-stalled Gilimanuk-Mengwi toll road was partially revived, though the Gilimanuk-Pekutatan section was cancelled on grounds of low population density, with sections II and III from Pekutatan to Mengwi proceeding. The Jakarta-Cikampek II Southern toll road reached 81.65 per cent physical completion, whilst the Kediri-Tulungagung Toll Road in East Java continued construction with airport access sections at over 57 per cent. In Surabaya, a feasibility study kickoff marked the formal commencement of the Surabaya Regional Railway Line project in partnership with Germany’s KfW and Japan’s Chodai. Meanwhile, IKN Nusantara secured a US$2.49 million grant from the US Trade and Development Agency for smart city planning, and three new investors signed cooperation agreements to develop commercial and recreational facilities within the new capital.

The month’s most politically charged economic controversy centred on PT Agrinas Pangan Nusantara’s plan to import 105,000 four-wheel-drive pickup trucks from India’s Mahindra and Tata Motors for the Merah Putih Village Cooperative programme at a total contract value of Rp24.66 trillion. Critics from across the political spectrum, including members of PDI-Perjuangan, trade unions, and economists at CELIOS, argued the procurement would damage the domestic automotive industry, reduce GDP by an estimated Rp39 trillion, and contradict President Prabowo Subianto’s stated commitment to industrial self-reliance. The Indonesian Labour Confederation (KSPI) estimated that domestic production of the same vehicles could create at least 10,000 jobs. Finance Minister Purbaya Yudhi Sadewa sought to reassure markets that the procurement would be financed through state bank loans repaid via existing village fund allocations, presenting no new fiscal burden, whilst Agrinas defended the decision on the grounds that Indonesia does not produce 4x4 pickups domestically and that the Indian vehicles offered significant cost savings. The DPR’s Budget Committee Chair Said Abdullah called for outright cancellation; Deputy Speaker Sufmi Dasco Ahmad requested postponement pending a presidential review. Mahindra subsequently committed to building a factory in Indonesia by 2027 and Tata Motors by 2029, though critics noted these commitments carried no legal force.

Parallel debates on trade policy were triggered by Indonesia’s Agreement on Reciprocal Trade (ART) with the United States, which opened critical mineral and rare earth sectors to US investment whilst committing Indonesia to local content relaxations. The government was at pains to clarify that downstream processing obligations remained non-negotiable and that raw mineral exports would not be permitted, with Deputy Minister of Investment Todotua Pasaribu describing US access as standard commercial practice subject to existing regulations. The agreement drew broader concern from analysts who questioned whether rushed negotiations had weakened Indonesia’s long-term bargaining position, particularly given the simultaneous extension of ExxonMobil’s Cepu Block licence to 2055. On a more positive note, Indonesia and the United States signed a US$4.9 billion partnership to develop an integrated semiconductor manufacturing hub in Batam’s Galang district, with projections of 5,000 skilled jobs and a formal Joint Development Agreement witnessed by President Prabowo.

The small and medium enterprise landscape received extensive attention. The UMKM Minister Maman Abdurrahman argued forcefully that the fundamental obstacle to MSME growth is not financing access but an unhealthy domestic market flooded with cheap imports, including illegal Chinese goods, which he also blamed for rising KUR default rates. Bank Indonesia data confirmed that overall bank lending grew 9.96 per cent year-on-year in January 2026, yet MSME lending continued to contract – an uncomfortable juxtaposition given the government’s Rp308.41 trillion KUR allocation for 2026. The Kadin survey reinforced the cautious mood: only 39 per cent of entrepreneurs surveyed expressed readiness to invest or expand in the coming six months. The rapid decline of traditional warung kelontong – from 6.1 million in 2007 to 3.9 million by end-2025 – and the closure of over 3,500 traditional markets prompted the Cooperatives Minister to request that Indomaret and Alfamart halt further rural expansion, and the government to initiate a review of Presidential Regulation No. 112 of 2007.

On the energy and resources front, Italy’s Eni reached Final Investment Decision stage for the US$15 billion Indonesia Deepwater Development gas project in East Kalimantan, whilst Finance Minister Purbaya convened a debottlenecking session on the long-stalled US$21 billion Masela Block LNG project, pledging to remove all licensing obstacles and urging operator Inpex Corporation to target first production by 2029. Indonesia’s Islamic finance sector continued its structural expansion, with total Islamic financial assets rising to Rp10.257 trillion by 2025, representing 30.3 per cent of national financial assets. Danantara, Indonesia’s sovereign wealth fund, marked its first anniversary with ambitions to consolidate over 1,000 SOEs down to approximately 200 and expand assets under management to US$2.7 trillion by 2030, whilst its CEO met Moody’s executives in New York to address concerns following a downgrade of Indonesia’s debt outlook. Investment realisation figures from BKPM confirmed full-year 2025 inflows of US$120.7 billion, a 12.7 per cent year-on-year increase.

Looking ahead, the trajectory of global oil prices following the Iran strikes will be the single most consequential variable for Indonesia’s near-term economic management. A sustained disruption to Hormuz shipping lanes could push inflation above the central bank’s tolerance band and force Bank Indonesia to delay the two interest rate cuts that Mandiri Bank’s chief economist Andry Asmoro currently projects for 2026. Domestically, the Eid homecoming season in March will serve as an early stress test of the government’s infrastructure investments and logistical coordination across more than 143 million travellers. The Masela Block and Batam semiconductor partnership represent longer-horizon bets on Indonesia’s capacity to move up the value chain – both require sustained regulatory predictability that the Agrinas import controversy has somewhat undermined. The government’s credibility on industrial policy will be tested again as Danantara announces Waste-to-Energy tender winners in March and as the Merah Putih cooperative rollout continues, with parliament watching closely for transparency and consistency with the stated ambition of building a resilient, self-reliant economy.