This Week in the Indonesian Economy (22-28 Feb 2026)

The final days of February 2026 delivered Indonesia an unwelcome external shock that overshadowed nearly every other development of the week. On the evening of 28 February, the United States and Israel launched coordinated military strikes on Iran, triggering immediate airspace closures across the Gulf region and sending shockwaves through global energy and aviation markets. For Indonesia, the consequences were swift and practical: flights from Bali’s Ngurah Rai Airport and Jakarta’s Soekarno-Hatta to Dubai, Doha and Abu Dhabi were cancelled or diverted, with Qatar Airways suspending all services from Doha after Iran launched retaliatory ballistic strikes on Gulf capitals. Jakarta Governor Pramono Anung issued an alert over potential supply chain disruptions and inflation in the capital, warning particularly of risks to the Strait of Hormuz through which roughly 20 per cent of global liquid oil consumption passes daily. Economists from Bank Mandiri and the Centre for Economics and Law Studies warned that crude prices could surge toward $120 per barrel – a level reminiscent of the economic fallout following Russia’s invasion of Ukraine – posing a direct threat to Indonesia’s fuel subsidy budget at precisely the moment Pertamina had just implemented a fuel price adjustment effective 1 March 2026. While subsidised Pertalite and diesel remained unchanged at Rp10,000 and Rp6,800 per litre respectively, premium grades saw increases, with Pertamax Green RON 95 rising to Rp12,900 per litre and Pertamina DEX jumping to Rp14,500 per litre. The timing, coming just as Indonesian analysts had flagged upward pressure from rising Brent crude averages, added a layer of vulnerability to an economy already navigating external headwinds from US tariff policy.

The tariff dimension had itself been rattling markets throughout the week. The Jakarta Composite Index fell 1.05 per cent on 26 February, closing at 8,235, after the US Department of Commerce imposed tariffs on solar cells from Indonesia, India and Laos, amplifying investor anxiety over US President Donald Trump’s broader trade posture. The Rupiah, however, found partial support from strong domestic demand for Indonesian government bonds – a recent global euro bond offering was oversubscribed 3.4 times – and by mid-week had strengthened to around Rp16,744 against the dollar. Mandiri Bank’s chief economist Andry Asmoro projected a maximum of two Bank Indonesia rate cuts in 2026, tempering expectations of near-term monetary relief. Finance Minister Purbaya Yudhi Sadewa struck a more assertive tone, pledging to monitor first-quarter ministry spending against an Rp809 trillion accelerated expenditure target, with the government targeting 6 per cent full-year growth despite a January budget deficit of Rp54.6 trillion.

On the infrastructure and industrial development front, the week brought several genuinely consequential announcements. Indonesia signed a landmark $4.89 billion partnership with a US firm to develop an integrated semiconductor manufacturing hub in Galang, Batam, with projections of 5,000 skilled jobs and technology transfer benefits – a concrete output of the bilateral Agreement on Reciprocal Trade whose terms, including relaxation of local content requirements and critical mineral access for US investors, continued to draw scrutiny from analysts who warned against weakening Indonesia’s bargaining position. The Nusantara Capital Authority (IKN) also secured a $2.49 million grant from the US Trade and Development Agency to support its smart city blueprint, attracting praise from visiting American academics even as US media outlet NPR reported candidly on the project’s financing and logistical challenges. Meanwhile, Central Java’s Batang Integrated Industrial Zone (KITB) advanced its ambition to become Indonesia’s first green industrial zone with a 180-megawatt renewable energy supply agreement, positioning itself to attract semiconductor, petrochemical and data centre investors under tier-four reliability standards.

Energy sector governance occupied considerable attention. Finance Minister Purbaya convened a nearly two-hour debottlenecking session with Japanese operator Inpex Masela Ltd and SKK Migas over the long-delayed Abadi Field LNG project in Maluku, valued at close to $21 billion, pledging to designate Inpex as a special investor and remove regulatory obstacles with a view to first production before 2029. Italian major Eni, meanwhile, moved to the Final Investment Decision stage on Indonesia’s Deepwater Development project encompassing the Geng North and Gendalo-Gendang fields in the Kutei basin, a $15 billion commitment that marked a significant vote of confidence in Indonesia’s upstream sector. The Balikpapan Refinery Development Master Plan, inaugurated by President Prabowo Subianto in January, was further validated by BPH Migas’s confirmation that the integration of the refinery with the Tanjung Batu Fuel Terminal via submarine pipeline had already enhanced distribution efficiency across Kalimantan, Makassar and Bali.

The mining sector faced a more ambivalent week. Indonesia’s National Energy Council chairman Satya Yudha pressed for downstream processing to extend beyond smelters to final-stage manufacturing to generate genuine added value, a message reinforced by the government’s confirmation that it had reduced nickel production quotas by around 30 per cent in the 2026 Work Plan and Budget – to 250-270 million tonnes from 379 million tonnes in 2025 – ostensibly to support flagging global prices. Industry officials warned the cuts could paradoxically force smelters to import ore and reduce non-tax state revenues. On the enforcement front, the Forest Area Enforcement Task Force sealed operations at PT Mineral Trobos in North Maluku for suspected illegal nickel mining in protected areas, part of a broader crackdown that also saw 18 unlicensed mining pits shut down in Bogor’s Nanggung District and an Rp500 billion administrative fine handed to PT Karya Wijaya, owned by North Maluku Governor Sherly Tjoanda. Danantara, the sovereign wealth fund that marked its first anniversary this week, was simultaneously managing its own controversy as its attempted acquisition of the Martabe gold mine faced investor backlash over procedural violations, with the government reportedly reconsidering its approach.

The most politically charged business controversy of the week centred on PT Agrinas Pangan Nusantara’s plan to import 105,000 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, with Agrinas having already paid a 30 per cent deposit of Rp7.39 trillion. Labour unions, automotive manufacturers, legislators from multiple parties, and economists aligned in opposing the import, arguing it contradicted the government’s industrialisation goals, could reduce GDP by nearly Rp40 trillion according to analysis by the Centre for Economic and Law Studies, and would potentially cost at least 10,000 domestic manufacturing jobs. The Cooperative Minister ultimately confirmed the procurement had been postponed pending a presidential decision, while Agrinas defended its case on grounds that Indonesia does not domestically produce 4x4 pickup trucks at competitive price points.

As Ramadan entered its second week, the government’s logistical mobilisation for the Eid homecoming – projected to involve 143.91 million travellers, or 50.6 per cent of Indonesia’s population – remained the dominant domestic story. The Ministry of Public Works reported reducing potholes on the western Pantura (North Coast) highway from 7,000 to 2,500, with a zero-pothole target set for ten days before Eid. Six toll road sections totalling 198 kilometres were designated for toll-free operation during the exodus and return. The Palembang-Betung toll road, at 79.4 per cent construction completion, was being prepared for a functional free opening to cut the Palembang-Banyuasin journey from four hours to one. KAI deployed additional trains across multiple operational areas, with Danantara evaluating a purchase of 50 Boeing aircraft for Garuda Indonesia. Transport Minister Dudy Purwagandhi was particularly active, inspecting hubs in South Sulawesi, West Sumatra, Gorontalo and West Nusa Tenggara while warning of extreme weather risks that could complicate road and sea transport safety.

Behind these preparations lay the continuing recovery from devastating November 2025 floods across Sumatra. As of late February, only 401 of 17,969 planned permanent houses had been completed for disaster survivors in Aceh, North Sumatra and West Sumatra, though the government’s Rp56.3 trillion master plan was gaining administrative momentum with multiple bridge, dam and road projects under construction. The National Food Agency confirmed commodity prices in disaster-affected areas of North Sumatra remained relatively stable, with staple goods including poultry, eggs and rice within regulated retail price ceilings – a fragile but important signal of supply chain resilience.

Looking ahead, the Iran-US-Israel conflict casts the longest shadow over Indonesia’s near-term economic outlook. Should oil prices escalate sharply toward the $100-120 per barrel range that analysts are warning of, Indonesia faces a painful trilemma: absorb the cost through fuel subsidy expansion that strains the fiscal position, pass increases to consumers during a period of Ramadan and Eid sensitivity, or attempt a combination of both that satisfies neither objective. The government’s ability to complete its ambitious Eid transport programme while managing inflationary pressures, sustaining investor confidence in downstream industrial projects, and progressing post-disaster reconstruction in Sumatra will test its coordination capacity across multiple ministries simultaneously. The week’s events underscored that Indonesia’s economic trajectory, while genuinely promising in structural terms, remains more exposed to geopolitical volatility than its policymakers would prefer.