Why Indonesians are souring on Prabowo

0:02Good morning from the Financial Times. Today is Wednesday, July 1st, and this is your FT News Briefing. The head of NATO says Europe's rearmament is good for the U.S. and bending spoons is going public. They're all about bringing struggling companies back to life. Plus, investors and Indonesians are growing impatient with President Prabowo Subianto. If the currency weakens significantly, then we could see more social unrest. I'm Mark Filippino, and here's the news you need to start your day.

0:41Mark Ruta says NATO is doing good things for the American economy. The Secretary General of the Alliance spoke to the FT recently. 195 ,000 jobs being supported by EU and Canadian, European and Canadian investments in the defense industrial base in the U.S. He says those jobs are supported through$300 billion in arms orders. Ruta visited the White House last week to address America's frustrations with NATO. President Donald Trump has criticized allies for not being supportive enough during the U.S. war with Iran, especially the ones that didn't let American warplanes use their airspace or military bases.

1:19What I sense generally in the U.S. is disappointment when it comes to what I would say are isolated cases where Europeans did not always fulfill what was bilaterally agreed previously when it comes, for example, to basing agreements. NATO will hold a leader summit in Turkey next week.

1:47AOL and Vimeo are coming back to Wall Street. Both were acquired last year by a company called Bending Spoons, an Italian tech conglomerate. Bending Spoons is going public today, and the head of the FT's Lex column, John Foley, describes it as an emergency room for critically injured tech businesses. He joins me now. Hi, John. Hi there. John, I love that description. Why is Bending Spoons an emergency room for critically injured tech businesses?

2:15Anantha Lakshmi: Well, when you think about hot tech stocks, you tend to think of visionary owners coming with great ideas for new business models. Bending Spoons is a tech company, but what's interesting about it is that it actually takes kind of old has-been businesses that aren't doing very well anymore. And it recuperates them, it rehabilitates them, it guts them from the inside, rebuilds all of their code, tries to spruce up their products and squeezes new financial returns out of them. So far from being about creating something new, it's actually taking things that are old and trying to get new life out of them.

2:48John, this is clearly out of the private equity playbook in the sense that it guts and then rebuilds companies. Given the struggle that PE has seen lately, why would any investor be interested in that?

3:02Anantha Lakshmi: Well, when you look at the numbers that they've published in their filing ahead of their initial public offering, there is some really impressive growth going on, right? So their revenue went from under$400 million in 2023 to on an annualized basis, it's going to be about$2.4 billion this year. So one of the things that investors have to be a bit cautious about is that this company's growing really quickly. Its business model is that it goes out, it takes on debt, and it buys businesses like AOL, like Vimeo, like Evernote, and it builds an ever bigger portfolio of companies that are all going through the kind of critical care process.

3:36Anantha Lakshmi: And that makes it very hard to see on an underlying basis how any one of its individual investments is doing. You just have to trust that that growth, which is inorganic growth, it's coming through acquisitions, is also being matched by underlying improvements that are sustainable. And it's really hard to know at this point whether that's the case. So, John, then what differentiates Bending Spoons from a private equity firm in terms of strategy? Well, there are two differences really between Bending Spoons and private equity. One is that Bending Spoons really focuses on the idea that there are coders and engineers who actually rebuild these companies insides from technical points of view.

4:13Anantha Lakshmi: But the other really big difference that I think is really interesting here, is that private equity buys companies, piles debt on them, and then it sells them after a few years. Bending Spoons does the first bit, but it doesn't sell companies. So the founder, Luca Ferrari, says that they've never sold a business and they don't intend to. And if you think that the problem for private equity companies at the moment is that they just can't sell the businesses they bought, well, that's not a problem here because Bending Spoons never intended to sell. Of course, the question then is, can you get the same kind of returns over time if you're not flipping businesses like burgers and just benefiting from prices going up between the point when you bought and the point where you sell.

4:52Yeah, I mean, I would love to see the sales pitch to get people back on AOL, right, or using AOL products. Like, that's quite an uphill battle.

4:59Anantha Lakshmi: Well, that is the special source, right? And what they do is they crank up prices. So they take products that people are kind of hooked on. Evernote is an example. It's like a note online organizer that once you're using it, you're kind of dependent on it because it has all of your stuff in there. And then they improve the product, yes, but they also ratchet up the price. So the idea is that sticky customers will pay more rather than pull the plug on the service that they're addicted to. Gotcha. So what are you looking out for as the company goes public today and beyond, I guess? Well, I think there will be a lot of interest in Bending Spoons.

5:30Anantha Lakshmi: Apart from anything else, it's a very rare European tech story, and there aren't many of those in the market. The flip side of that is, will American investors care very much? So it could be in for a volatile ride. I think what we'll be waiting to see, though, is over the longer term, can they show that sustainable improvement in profitability at the companies they buy? John Foley is the head of the FT's Lex column. Thanks so much, John. Thanks.

6:00Speaking of IPOs, the French-German tankmaker KNDS might have to delay its market listing. The company is having a hard time convincing investors to back its initial public offering, valued at more than 12 billion euros. The FT has learned that some investors told KNDS this week they believe it will be worth less than that amount. The defense manufacturer's crucial German owners have said they won't go ahead with a flotation valued below 12.5 billion euros. KNDS has been planning to launch its IPO bid this month, and it was expected to be one of the biggest in Europe in recent years. But a shift away from heavy machinery and warfare towards cheaper drones is spoiling investor enthusiasm.

6:47The Indonesian economy is struggling, and it's affecting the political climate there. The country is waiting on a decision from the global index provider MSCI. It could downgrade Indonesia from an emerging market to a frontier one. But protesters aren't waiting to draw their conclusions. Students have been leading demonstrations to voice their anger with President Prabowo Subianto. Anantha Lakshmi is the FT's Jakarta correspondent. She joins me now to discuss what's been happening there. Hi, Anantha. Hi. So let's start with a big picture of the Indonesian economy. How bad are things there? So if you look at the GDP numbers coming out of Indonesia, they're still stable at around 5%, as it has been for most of the past decade.

7:30But I think things are a bit different on the ground. The rupiah currency has hit multiple historic lows this year, mostly because investors are quite worried about the policy direction of President Rabo Osobianto. He's focused on a lot of expensive welfare policies, which are well intended. But unfortunately, the rollout has been marred by corruption allegations. And in the case of his flagship free meals program, there have been 37 ,000 incidents of food poisoning, mostly students. So that's caused a lot of anger among the public. But it's also raised a lot of concerns among investors because they think the government is not spending funds on the right projects.

8:14Yeah, tell me a little bit more about those investor concerns. In particular, Indonesia is the worst performing stock market globally this year with a loss of around 30%. In FDI investors, on the other hand, they're also concerned about creeping state control in the private sector, especially in the resources industry. So investors are concerned about the macroeconomic policies and the fiscal strength of Indonesia. Because of Probovo's focus on welfare schemes, which are very expensive, they're worried that Indonesia could breach its fiscal deficit limit, self-imposed limit of 3%. And Indonesia has spent a lot of time building that confidence among investors that it can stay fiscally disciplined since the Asian financial crisis.

8:59But now they're worried that that discipline is going out the window. The Iran war has also complicated things because Indonesia provides a lot of fuel subsidies, which costs a lot from the state budget. And now as oil prices go up, the spending that the government has to make on the fuel subsidies is also going up. OK, so what are Indonesians saying and doing about this? The weaker rupiah in particular is affecting lots of Indonesians. Just about two years ago, Prabowo did win a landslide victory in the presidential election. And initially, his welfare policies were very popular among the public.

9:39But in June, we have seen a lot of protests, mainly led by university students, protesting about Prabowo's economic policies, but also in particular about the free meals program. Turnout has been small, but I think they still carry a lot of significance because these students, they're emerging as one of the few voices of opposition in Indonesia. In parliament, there's essentially no opposition because President Prabowo has put together a coalition that has near full control of the legislature. Okay, so then how are you expecting things to play out over the next couple of weeks and months? In terms of markets, I think there's going to be a lot of uncertainty because there's still the overhang of the pending decision by MSCI on whether to downgrade Indonesia to a frontier market.

10:26If it does happen, there could be massive outflows, which could further hurt sentiment and affect the currency further. On the streets, I think we could continue to see small protests, again, primarily led by students. But if the currency weakens significantly, then we could see bigger turnouts and more social unrest. Anantha Lakshmi is our Jakarta correspondent. Thanks, Anantha. Thanks for having me. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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