Investors Not Happy as Indonesia Eases Limits in Military Law

Investors – and many Indonesian citizens – have been unimpressed by President Prabowo Subianto’s latest move, to allocate more civilian posts for military officers.

There is growing concern about the big-spending former general, who has approved contentious populist spending such as free lunches for students – a $30 billion election promise, while pushing to weaken the country’s central bank and slashing spending on infrastructure.

The Jakarta Stock Exchange index, which has plunged by over 11.5% this year, fell by as much as 2.6% on Friday.

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On Thursday, the national parliament passed revisions to the country’s military law that will allow army officers to take more civilian jobs, despite angry protests by hundreds of students and activists.

The revisions have been condemned by civil society groups, who say it could take the world’s third-biggest democracy back to the draconian ‘New Order’ era of former strongman president Suharto, when military officers dominated civilian affairs.

Speaker Puan Maharani led the unanimous vote in a plenary council and officially passed the law, saying it was aligned with the principles of democracy, human rights and civil supremacy, Reuters said.

President Prabowo, who took office last October and was a special forces commander under Suharto, has been expanding the armed forces’ role into what were considered civilian areas, including his flagship programme of free meals for children.

Rights groups have criticised the increased military involvement because they fear it may lead to abuses of power, human rights violations and impunity from consequences for actions.

The government has said the latest bill requires officers to resign from the military before assuming civilian posts.

There were concerns that officers could be allowed to join state-owned businesses but that aspect of the law was not revised, lawmaker Nico Siahaan, who was involved in talks on the legislation, told Reuters.

People protest over changes to Indonesia’s military law outside parliament in Jakarta, March 20, 2025 (Reuters).

Sri Mulyani: I’m not resigning

Early this week, rumours emerged that Finance Minister Sri Mulyani Indrawati would resign, after she met with Prabowo last week.

But the minister, who is highly regarded and has kept a lid on spending during her many years in office, was forced to come out to deny the speculation after the stock market dropped by the most in three years on Tuesday.

Bank Indonesia also had to step in to defend the rupiah, which has been the worst performing currency in Asia this year.

However, investors remain concerned about US President Donald Trump’s threats to increase tariffs, plus a decline in exports caused by China’s economic slowdown.

Fears of a return to Indonesia’s dark past

On Thursday, hundreds of students rallied outside the parliament in Jakarta following the passage of the revisions. Dozens of them burned tyres and some jostled their way through the gates.

Activists brought signs that read “New Order Strikes Back” and “Take the military back to the barracks”.

Usman Hamid, the head of Amnesty International in Indonesia and who protested against Suharto during the New Order era, warned of the past returning.

“Activists were kidnapped and some have not returned home. And today it feels like we’re going backwards,” he said.

Analysts, meanwhile, seem more concerned about the lack of ‘sound economic judgement’ being displayed by their president.