Stable Inflation and Monetary Policy

Indonesia Weekly Updates: June 23–29, 2025 Edition.

Indonesia’s inflation remains low and well within the central bank’s target range. Official data show headline inflation at 1.87% year-on-year in June 2025, up slightly from 1.60% in May. Food prices, especially staples like rice and chili, have contributed to inflation modestly (0.19% m/m in June). Bank Indonesia (BI) has held its benchmark rate at 5.50% since June, citing stable inflation and exchange rates. Core inflation is also contained (2.37% y/y in June). These trends reflect resilient macro conditions, but authorities note global risks (e.g. U.S. tariff threats) could pose upside pressure on prices.

Stakeholder Responses:

Bank Indonesia (BI): BI Governor Perry Warjiyo emphasizes that monetary policy will remain accommodative to support growth, maintaining flexibility in case of shocks. The July meeting (July 15–16) will be closely watched for any rate change.
Investors/Economists: Analysts see the rate pause as expected given the subdued inflation, projecting possible cuts later in 2025 if the rupiah stays stable. The June hold aligns with a Reuters poll predicting a 5.5% rate.
Government: Finance Ministry focuses on fiscal stimulus (e.g. wage subsidies) to bolster growth amid external headwinds. Policies like the inflation-linked wage subsidies (BSU) are planned to protect purchasing power if conflicts abroad disrupt supply chains.

Key Takeaways:

Inflation is benign (1.87% y/y) and below target ceiling, giving BI room to support growth. Low food inflation and energy subsidies are key factors.
BI’s pause at 5.50% maintains an accommodative stance; future easing is likely if global volatility eases. Investors may favor long-duration sovereign bonds as yields begin to price in cuts.
Continued vigilance is needed: trade wars or Middle East conflicts (e.g. Iran-Israel tensions) could feed into higher import prices and disrupt growth. Businesses should monitor export-import developments (the government is also preparing a large U.S. purchase agreement to avert tariffs) as part of the economic outlook.

Enforcement of Digital Platform Regulations

The government is stepping up enforcement of digital economy rules. On June 29, the Ministry of Communication and Digital Affairs announced it blocked access to eBay, KLM, and Bath & Body Works websites in Indonesia. These companies failed to register under the required “Private Electronic System Provider” (PSE) regulations (Government Regulation No. 5/2020) by the deadline. The ministry warned that all unregistered digital services must comply or face blocking. This follows earlier warnings to global brands (Nike, Lenovo, etc.) about non-compliance. The sanctions are intended to promote an orderly digital landscape and equal obligations for all platforms.

Stakeholder Responses:

Government (Komdigi): Director General Alexander Sabar said the blocks are an administrative sanction after warnings and letters were ignored. He stressed that the measure protects users by ensuring digital services are accountable and secure.
Affected Companies: eBay and KLM have not publicly responded yet, but are expected to register their services. Industry observers note that Indonesia’s strict digital compliance environment means foreign platforms must adapt or risk being cut off. (Previously, seven major platforms were warned with similar notices.)
Users and Experts: Digital rights advocates have mixed views: some see the regulation as necessary for data security, others worry it could hinder user access and foreign investment in tech. The broad enforcement signals to all PSEs that the law is taken seriously.

Key Takeaways:

Multinationals with online services in Indonesia must ensure full compliance with the PSE registration rules. Failure to register promptly leads to loss of market access (as seen with eBay, etc.).
The government’s push for a “responsible digital space” means all e-commerce, platforms, and content providers face equal obligations (registration, data localization, tax, etc.). Companies should audit their legal status now.
This crackdown is part of a broader digital regulation trend (e.g. enforced taxes, content rules). For multinationals, it underscores risks in Indonesia’s tech sector despite a large market. They should engage local advisers and plan for compliance costs as part of digital strategy.

Proposed E-Commerce Tax on Online Sales

: In a move to boost tax revenue, Indonesia’s finance ministry plans new regulations requiring e-commerce platforms (e.g. Tokopedia, Shopee, Lazada, TikTok Shop) to collect and remit a 0.5% sales tax on behalf of their small sellers. This measure, revealed by finance sources on June 24, targets millions of micro and small online businesses (annual sales 500 million–4.8 billion rupiah). Similar rules were attempted in 2018 but dropped after industry backlash. The government cites falling tax revenues (down 11.4% y/y through May 2025) and a booming digital sector (projected GMV $65B in 2024 growing to $150B by 2030) as motivations. The rule would level the field between online and traditional retailers, and help tap revenue from the fast-growing e-commerce economy.

Stakeholder Responses:

Finance Ministry: Declined to comment publicly on specifics, but officials indicate the policy is aimed at strengthening tax compliance without overly burdening growth. They plan to issue formal guidance soon.
E-Commerce Platforms and Association (idEA): Indonesia’s e-commerce association idEA would not confirm details but warned that the rule will affect millions of sellers if implemented. Platforms say the proposed withholding will increase administrative costs and could strain the tax IT systems (which have faced glitches). They fear higher costs for sellers and customers.
Small Sellers: Up to 13 million MSMEs sell online; they are already nominally liable for this tax but rarely comply. Many small sellers may resist passing on the burden, potentially pushing some to informal channels. Industry sources expect negotiations on thresholds and implementation timing.

Key Takeaways:

The policy signals Indonesia’s intent to tax its digital economy more thoroughly. Multinationals in e-commerce and retail should expect closer scrutiny and possibly greater tax collection obligations on their platforms.
Implementation challenges are real: Indonesia’s tax infrastructure must handle vast new data flows. The government will likely work with platforms on a roll-out. Companies should monitor draft regulations (due second half 2025) and prepare to update billing/tax software.
For business planning, note that this could slightly raise the cost base for online transactions. However, it also reflects Indonesia’s digital growth; stable revenues would support continued consumer demand. Firms should continue to engage with regulators (e.g. via idEA) to shape workable rules.

Expansion of Renewable Energy Infrastructure

President Prabowo Subianto inaugurated a new wave of renewable energy projects on June 26, underlining Indonesia’s push for green power. In a ceremony in East Java, Prabowo launched power plants in 15 provinces (geothermal and solar), totaling 379.7 MW capacity and IDR 25 trillion ($1.6B) in investment. This phase included projects like the 34.5 MW Blawan Ijen Geothermal Plant (Medco partnership) and multiple large-scale solar parks. The Energy Minister noted that these plants are “the largest in Indonesia”, involving partnerships with companies like PT Medco and Supreme Energy. The drive reflects government goals to increase renewables under the latest 2021–2030 energy plan, diversify the energy mix, and meet climate commitments.

Stakeholder Responses:

Government (President, Ministry of Energy): President Prabowo and Energy Minister Bahlil emphasized that renewable energy is a top priority. They touted the geographic breadth of these projects (15 provinces) as evidence of commitment to “energy transition and security”. The government has also set ambitious targets for geothermal and solar capacity by 2030.
Private Sector: Major energy firms are involved (e.g. PT Medco Cahaya Geothermal on Blawan, Supreme Energy on solar). They are responding positively to new permits and support from the government, as seen by the speed of project development. However, investors expect clarity on power purchase agreements and feed-in tariffs for future projects.
Local Communities: Provincial governments and communities welcome the projects for job creation and electricity access. Some environmental groups have also praised the move, noting it reduces reliance on coal (Indonesia still has over 60% coal power share). They will watch to ensure projects meet environmental standards.

Key Takeaways:

The government is accelerating investment in renewables. Multinationals in energy (developers, equipment suppliers, financiers) should note the favorable climate: new projects are being greenlit nationwide.
These inaugurations signal upcoming opportunities in geothermal, solar, and potentially hydro. Foreign firms with technology (e.g. solar panel makers, battery storage, geothermal tech) may find partnerships (as with Medco) to enter the market.
Long-term impact: Boosting renewables should help Indonesia meet its climate targets and reduce fuel imports, but it will take years. In the short term, expect supportive policies (permitting, grid access) but also competition for contracts. Companies should engage with the government’s roadmaps (the RUPTL power plan) for alignment.

Nuclear Energy Commitment by 2034

Indonesia is exploring nuclear power as part of its long-term energy strategy. In late June, the energy ministry announced a target to have the first nuclear power plant online by 2034 at the latest. The plan calls for a 500 MW small modular reactor (SMR) unit, initially focusing on candidate sites in Sumatra or Kalimantan. Energy Minister Bahlil Lahadalia said the nuclear program is intended to bolster energy security and support net-zero goals. Interest has been expressed by several countries: Russia and Canada (among others) have proposed cooperation on reactors and fuel processing. The government is also drafting regulations to allow domestic processing of uranium in West Kalimantan, indicating a comprehensive nuclear development strategy.

Stakeholder Responses:

Government: Energy officials emphasize that nuclear is a complement to renewables, not a replacement. They stress thorough feasibility and safety planning over the coming years. The Deputy Minister noted that developing uranium resources (24,000 tons in Melawi) would support the industry.
Foreign Partners: Russian state firm Rosatom is a likely partner (as it is in other Asian countries). Canadian and American SMR developers are also in talks. These partners have welcomed Indonesia’s interest and are studying possible investment models.
Environmental and Public: Some Indonesian environmental groups remain cautious, citing safety and cost concerns. Public opinion is mixed due to past nuclear controversies. Officials are likely to launch an information campaign about nuclear safety and economic benefits.

Key Takeaways:

The nuclear roadmap opens a new sector for foreign and domestic firms. Reactor vendors (SMR specialists) and nuclear services companies should watch Indonesian tenders or consortium formations.
The timeline (2034 goal) is ambitious. Companies interested in Indonesia’s nuclear market should start engaging now on feasibility studies and regulatory compliance. There may be opportunities in early-stage project development, fuel cycle services, and training.
Policy impact: This move signals Indonesia’s commitment to diversifying energy sources. Nuclear power would increase the country’s firm (baseload) power capacity while limiting emissions. For businesses, this could mean more stable power supply projections in the long term, and potential collaboration with government-backed entities (e.g. mining of uranium, construction of labs).

Strengthening Ties with Russia

Indonesia is deepening its strategic partnership with Russia under President Prabowo Subianto’s government. In mid-June at the St. Petersburg Economic Forum, President Prabowo met President Vladimir Putin. The two leaders signed a strategic partnership declaration and oversaw the launch of joint projects. Notably, Indonesia’s sovereign wealth fund (Danantara) and Russia’s RDIF agreed to create a €2.0 billion (~$2.29B) joint investment platform. They also signed agreements in education, transportation, and media cooperation. Putin praised Indonesia’s accession to BRICS (with Indonesia joining in January 2025) and noted growing trade and cooperation in areas like agriculture, space, energy, and defense. Indonesia in turn sees Russia as an important partner, complementing its relationships with the U.S., China, and others.

Stakeholder Responses:

Indonesian Government: Prabowo hailed the meeting as “intense, warm, and productive,” noting advances in trade and technology cooperation. Coordinating Minister Airlangga Hartarto (who attended) has later emphasized that the deals mainly focus on non-military sectors (finance, infrastructure, energy) to benefit the economy.
Russian Government: President Putin stated that Indonesia is a key Asia-Pacific partner and highlighted the growing trade (40% increase in first four months of 2025). He reiterated Russia’s commitment to deeper ties in critical areas like energy and nuclear power.
Western Observers: Some Western governments (e.g. Australia) have expressed concern that Indonesia’s closeness with Russia could shift the regional balance. However, analysts note Indonesia’s policy of non-alignment. Industry experts say the BRICS link could open new investment channels.

Key Takeaways:

Indonesia’s assertive non-alignment means it is cultivating ties with both East and West. For multinationals, this could signal expanded market openings: the new Danantara-RDIF fund aims to finance projects and investments that may involve both Russian and Indonesian companies.
The strategic partnership covers diverse fields. Companies in sectors like agriculture, oil & gas, infrastructure, and education should note increased cooperation avenues with Russian counterparts. For example, Russian Rosatom is already pitching nuclear reactors in Indonesia, and joint ventures in mining could expand.
At the same time, businesses must be aware of geopolitical risks. Closer Indonesia-Russia ties occur amid ongoing Russia-Ukraine conflict, which could affect Western perceptions. Firms should track how US and EU trade policies might respond; however, Indonesia has also moved to ease restrictions (like import rules) to appease trading partners. Maintaining balanced engagement across geographies is key.

For tailored advice on navigating these developments, including government relations strategy and deeper insights, please contact connect@lexico.id. Our experts can help multinational companies align business policies with Indonesia’s evolving political and economic landscape.