Indonesia’s Fixer-in-Chief Bows Out as Prabowo Takes the Helm

(Bloomberg) — In the countdown to the weekend inauguration of Indonesia’s new president, Jakarta’s political elite has been huddled at the incoming leader’s private ranch outside the capital, deep in the last-minute haggling that will determine the shape of the country’s government for the next five years.
All but one man. 
After a decade at the heart of power, Luhut Panjaitan, the 77-year-old fixer who championed so many of outgoing President Joko Widodo’s key industrial policies, says he is ready to step aside. His departure from the political frontline, after serious illness last year, is not unexpected. But with no clear heir in view, it leaves a tricky gap for the incoming administration as it tackles the next stages of key existing policies, including efforts to limit raw material exports in favor of higher value goods or the energy transition — areas which cut perilously across fiefdoms.
A retired four-star general turned diplomat and businessman, Panjaitan, widely known as Luhut, has a low profile outside his home country. Inside, however, he’s been for years the go-to man who can woo investors and shuttle between ministries to cut through the bureaucracy that so often tangles Indonesia’s unwieldy cabinets. He’s pushed through everything from coronavirus controls to a landmark climate finance deal in 2022.
His most significant policy accomplishment has been what is known in Jakarta as “downstreaming”, or the idea of leveraging Indonesia’s mineral wealth to secure investment in industrial development. The concept was not new when Jokowi, as the president is known, came in — it simply had never been put into action. And not without good reason, given the limited evidence of success elsewhere, with other mineral-rich nations also struggling to push investors toward processing and even manufacturing.
Panjaitan’s move to ban raw nickel ore exports in 2020 did infuriate trading partners. But it also proved a radical step that ultimately brought billions of dollars of mostly Chinese funds into Indonesian processing, and helped turn the country into a dominant force in the market. Restrictions on unrefined copper and bauxite have followed.
The economic impact of the nickel move has been rapid and visible. Indonesia has built a multi-billion industry, created jobs and boosted exports — even if that has also come at a steep environmental and human cost, especially for islands like Sulawesi.
“It’s really difficult to find a close personality who can replace Luhut,” said Siwage Negara, a research fellow at the ISEAS-Yusof Ishak Institute, pointing to Panjaitan, whose most recent title is Coordinating Minister for Maritime Affairs and Investment, as a critical actor.
“The new government needs to find someone who can play Luhut’s role, if they are serious about downstreaming.”
The moment is a delicate one for the downstreaming campaign. Indonesia’s new government has said it will continue to pull the economy away from its dependence on raw materials and encourage the development of a manufacturing sector. Incoming President Prabowo Subianto wants to include other commodities such as sugar and palm oil, according to people familiar with the matter. 
But he also wants to ensure existing bans are contributing financially, and his team has already commissioned McKinsey & Co. to provide a downstreaming review. (McKinsey did not reply to a request for comment.)
The ban on exports of bauxite, the ore used to make aluminum, may be first to be challenged. Shipments were stopped last year before enough refineries had been built, hitting local miners, curbing earnings from exports and prompting lawmaker protests. Jokowi and Panjaitan held firm. 
Without the dominance Indonesia enjoys in nickel, however, it is not clear that other export restrictions will ever generate a similar boost. In the first nine months of this year, the metal accounted for more than 40% of downstreaming investment, according to official figures. While nickel processing has boomed, a full-scale electric-vehicle and battery sector remains a distant prospect.
“Prabowo is inheriting a very constrained budget,” said Eve Warburton at the Australian National University’s Indonesia Institute. “He may pivot if the policy is more difficult to implement in other sectors, and the government needs fast revenue.”
Panjaitan declined to be interviewed for this story.
Military Clout
As a former army man, including with the elite special forces, Panjaitan’s pedigree resonated with the one-time officers who still hold sway in Indonesian politics and business. Prabowo himself was once under his command.
He is also wealthy, thanks to a coal and energy business set up after he left the forces and listed on the Jakarta stock exchange as PT TBS Energi Utama. Panjaitan has said he now owns approximately 9% of the firm, having divested most of his shares before coming into government. Still, a 2023 disclosure to Indonesia’s Corruption Eradication Commission put his personal net worth at 1.04 trillion rupiah ($65 million).
Key to his ascent has been his closeness to Jokowi, which dates back to a furniture-making venture they formed in 2009 while the outgoing president was mayor of a city in central Java. The two remained close, with Panjaitan stepping in to become Jokowi’s chief of staff after his election in 2014.
“Luhut has a lot of history working with Jokowi, he kind of represents the president,” said Putra Adhiguna, managing director at the Energy Shift Institute, adding Jokowi “delegated much of his decision-making to him.”
That relationship was leveraged to provide foreign investors with the confidence they needed to invest in nickel downstreaming and other ventures, according to those who met him. They knew Panjaitan had the president’s ear, and so spoke with authority. In a country where abrupt policy u-turns are not uncommon, his reassurance and straight-talking approach went far.
The exit also raises uncomfortable questions for another high-profile success, the Just Energy Transition Partnership, which is still the most significant climate finance deal signed to date and probably also the most ambitious, seeking to move Indonesia away from coal dependence. The agreement’s existence was itself a victory, but as Panjaitan departs, it remains largely on paper.
The new administration — assuming that climate deal remains a priority — will have to navigate institutional hold-ups, cut red tape and protectionist measures and campaign for continued disclosure. It will also have to continue to demand from wealthy partner nations more grants, concessional loans and straight-up investments into green energy generation and infrastructure, to clean up a system still heavily dependent on the dirtiest fossil fuel.
That may not be the direction of travel.
Of course, much depends on whether any replacement can be found for Panjaitan. Speculation has swirled around Prabowo’s brother and close adviser, Hashim Djojohadikusumo, who could step into a similar, perhaps backstage, position.
But even then the role is a daunting one. The downstreaming campaign in particular only becomes tougher as Indonesia tries to leverage more commodities where it is nowhere near as dominant as it is in nickel — while still hoping to go beyond processing to the next stage of development, into manufacturing and on to become a major player in EVs.
“We have only reached the first leg of downstreaming,” said Adhiguna. “The question is whether Indonesia can reach the second.”
–With assistance from Faris Mokhtar, Chandra Asmara and Eko Listiyorini.
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