Indonesia, with a population of approximately 283 million, is Southeast Asia’s largest economy, with a GDP of around $1.46 trillion USD in 2024. Following a significant contraction in 2020 due to the COVID-19 pandemic, Indonesia’s economy rebounded strongly, surpassing pre-pandemic levels in 2021. Growth continued with a 5.3 percent expansion in 2022, stabilized at around 5.0 percent in 2023 and in 2024, driven by robust domestic consumption, a resurgence in investment, and resilient export performance, particularly in natural resources and manufactured goods.

Strategically located along vital global trade routes, Indonesia spans more than 17,500 islands, covering an area comparable to the continental United States. The country’s abundant natural resources, youthful population, and substantial middle class position it as a critical player in the Indo-Pacific region.

In October 2024, President Prabowo Subianto assumed office, ushering in a new chapter in Indonesia’s political and economic trajectory. President Prabowo has set ambitious goals to accelerate economic growth to eight percent annually by 2029. His administration is pursuing fiscal reforms aimed at tightening budgetary discipline, including a significant $19.1 billion reduction in the 2025 state budget. Savings are being redirected toward social programs such as the Free Nutritious Meals initiative for students. The government also intends to increase the revenue-to-GDP ratio from 12 percent to 23 percent by improving tax collection efficiency and to establish a dedicated revenue agency modeled after the U.S. Internal Revenue Service. At the same time, Indonesia has launched its new sovereign wealth fund, Daya Anagata Nusantara (Danantara), with an initial target of $20 billion and ambitions to manage up to $900 billion in assets, focusing on renewable energy, advanced manufacturing, food production, and infrastructure development.

The government continues to prioritize industrial policies that encourage the domestic processing of Indonesia’s natural resources, a strategy often referred to as “down streaming.” By promoting greater value addition within Indonesia, the administration seeks to reduce reliance on raw commodity exports and enhance the country’s export profile.

Although economic growth has slowed somewhat in early 2025, leading some international observers to lower their projections to below 5 percent for the year, Indonesia’s macroeconomic fundamentals remain sound. Political stability, robust domestic demand, and healthy foreign reserves—approximately $145 billion as of early 2025—support continued growth. Inflation remains manageable, and the country continues to attract attention from global investors. However, structural challenges persist. Indonesia maintains various trade and investment barriers, including local content requirements and restrictive non-tariff measures, which have complicated trade relationships with major partners such as the United States. Regulatory uncertainty and inconsistent enforcement of laws also present hurdles for foreign companies operating in the market. Meanwhile, ambitious infrastructure and agricultural projects, such as food and energy estate development, have drawn criticism from environmental groups and indigenous communities over concerns related to deforestation and land use.

In this first year of President Prabowo’s leadership, businesses and investors are closely watching how the new administration will build on prior reform efforts while navigating the country’s ongoing challenges. The government’s continued emphasis on economic reform and growth signals potential opportunities for U.S. companies, though success in the Indonesian market will require careful monitoring of policy developments and proactive engagement with local stakeholders.

In July 2025, the United States and Indonesia announced a framework agreement to negotiate a comprehensive U.S.–Indonesia Agreement on Reciprocal Trade (ART)—a landmark initiative designed to deepen economic ties and expand market access on both sides. Under key terms outlined in the White House fact sheet, Indonesia will eliminate tariffs on approximately 99% of U.S. industrial, food, agricultural, health, ICT, automotive, and chemical exports, while the United States will cap its reciprocal tariff on Indonesian goods at 19%, with potential further reductions for commodities not produced domestically. The agreement also commits both countries to address a range of non-tariff barriers—from local content requirements and certification rules to U.S. vehicle safety and pharmaceutical standards—as well as to strengthen rules of origin, support digital trade, enhance economic security, and improve labor standards. Indonesia also pledged to remove export restrictions on critical minerals and align on supply chain transparency, particularly in steel capacity management. The ART framework lays the groundwork for negotiations toward a final agreement, with formal negotiations, signatory procedures, and regulatory implementation expected in the future.

Political Environment

Visit State Department’s website for background on the Indonesia’s political and economic environment at https://www.state.gov/countries-areas/indonesia/.