Prabowo’s finance team is considering amending the law to meet urgent spending needs
Release date: July 9, 2024 16:09
Indonesia’s next president, Prabowo Subianto, who will take office on October 20, speaks at the Shangri-La Dialogue, an international defence and security forum to be held in Singapore in June. (Photo: Reuters)
Indonesia’s President-elect Prabowo Subianto is considering lifting legal limits on the country’s budget deficit as his new government seeks more spending room, local media outlet Tempo reported.
Ahead of the start of his term on October 20, Prabowo has formed a team to consider amendments to the National Finance Law that would limit the budget deficit to 3% of gross domestic product and government debt to 60%. tempo The report, citing unnamed sources, said the law was signed in 2003 after the country was recovering from the Asian financial crisis.
The people said the change in law would also allow Prabowo to press ahead with his plan to set up an independent national tax agency separate from the finance ministry. tempo They are preparing the legal framework for setting up a revenue authority.
Indonesia’s parliament’s budget chairman, Said Abdullah, on Tuesday reiterated his commitment to maintaining the deficit cap, saying it was “critical for future fiscal consolidation,” a view shared by Prabowo’s transition team, he told reporters.
“Given the future fiscal challenges, which are getting tougher and the margins are getting tighter and tighter, I don’t think President Prabowo will tinker with the law,” he said.
That has further increased uncertainty over the fiscal outlook for Southeast Asia’s largest economy, encouraging foreign capital outflows and sending the rupiah lower. Investors worry Prabowo is being soft on the budget after he said in May that the country’s debt and budget deficit measures are lower than others and that it needs to be “bolder” on spending.
Tempo reported that Prabowo is considering lifting financial constraints to allow him to fulfill his election promise of free school meals, which is estimated to cost more than 400 trillion rupiah ($25 billion) a year if fully implemented.
The next leader will also need to follow through on promises to continue President Joko Widodo’s programs, including a new $34 billion capital city due to open next month.
Bloomberg News previously reported that the new government plans to raise Indonesia’s debt-to-GDP ratio by 2 percentage points per year for the next five years, which would bring the ratio to nearly 50 percent, the highest in two decades. Prabowo’s advisers later denied the plan and said they would maintain fiscal prudence.
