JAKARTA: Indonesia's ministers and officials with the incoming government on Monday (June 24) sought to allay market worries about President-elect Prabowo Subianto's expansionary fiscal policy, saying the 2025 budget gap would remain under the legislated ceiling.
Investors have been selling the rupiah and government bonds due to a shifting outlook for US monetary policy and investor concerns about the incoming government's fiscal stance.
The currency hit its lowest since 2020 last week, while bond yields also jumped on worries about the budget impact of Prabowo's policies.
The concerns were heightened by a report that the debt-to-GDP ratio would rise to 50% from under 40% currently under the incoming government.
Prabowo's economic advisor Thomas Djiwandono (pic), speaking alongside the outgoing government's economic ministers, said the President-elect was committed to fiscal targets set by the current government, including the 2025 fiscal deficit within the range of 2.29% to 2.82% of GDP.
"The debt-to-GDP ratio that was reported several weeks ago at 50% is not possible," Thomas said.
The cost for Prabowo's flagship programme to give free meals to school children has been projected at 71 trillion rupiah (US$4.32 billion) in next year's budget, already included in the total spending and would not widen the budget gap forecast, current finance minister Sri Mulyani Indrawati said.
"This 71 trillion rupiah is a very good figure. We're committed to run Prabowo's programme gradually, within the principles of quality spending and... with the fiscal posture in mind," Thomas said, adding Prabowo is committed to keeping the fiscal deficit under 3% of GDP.
Indonesia has laws limiting the annual budget deficit at 3% of GDP and the debt-to-GDP ratio at 60%.
At the conference, chief economic minister Airlangga Hartarto underlined Indonesia's strong economic fundamentals, saying the country runs a smaller fiscal deficit than countries like the US, China and neighbouring Thailand, Malaysia and the Philippines.
Airlangga blamed the rupiah's depreciation on a strong US dollar but said the central bank has intervened to steady the currency.
At a policy review last week, Bank Indonesia held its key benchmark interest rate steady and said it would fine-tune other tools to stabilise the rupiah, which it said would return to a strengthening trend once global uncertainties subside.
Separately on Monday, the World Bank said Indonesia's budget deficit is forecast to increase this year and may widen further as Prabowo implements his policy agenda, but revenue-side reforms could keep the gap under the legislated ceiling. - Reuters
