Managing Director for Political Economy and Policy Studies (PEPS),\nAnthony Budiawan, assesses that Indonesia\u2019s fiscal condition is\nincreasingly under pressure as state revenue weakens and debt-service\npayments rise. He says various indicators show the national fiscal\nhealth is deteriorating, yet the government continues to project an\noptimistic narrative that the state finances are strong with the claim\nthat \u2018we have plenty of money\u2019. \u2018Indonesia\u2019s fiscal position is\nincreasingly worrying. State finances are weakening,\u2019 he said in a\nformal statement on Tuesday, 19 May.<\/p>\n
He highlighted that the revenue-to-GDP ratio fell sharply to just\n9.3% in the first quarter of 2026. The figure is described as the lowest\namong the ASEAN-7 countries. At the same time, debt interest payments\nrose to 25.1% of revenue, a level deemed to threaten fiscal\nsustainability.<\/p>\n
\u2018Anyone who looks at these ratios clearly would say that Indonesia\u2019s\nfiscal position is not healthy,\u2019 he said.<\/p>\n
Nevertheless, Budiawan said the government continues to frame the\nsituation as safe. He said the Minister of Finance has repeatedly stated\nthat Indonesia\u2019s finances are healthy and strong, with the narrative\nthat \u2018we have plenty of money\u2019. According to Budiawan, such\ncommunication is not relevant to the conditions on the ground. \u2018This\nkind of narrative does not help at all,\u2019 he charged.<\/p>\n
He even suggested the narrative risks provoking public antipathy\nbecause it is seen as not reflecting the real conditions. He said the\ngovernment should be careful not to give the impression of disseminating\nmisinformation to the public.<\/p>\n
Budiawan also referenced the visit of the Finance Minister Purbaya to\nWashington, DC, recently to meet with several leaders of international\ninstitutions. After the visit, reports emerged that the government\nrejected a loan offer worth around $25\u201335 billion on the grounds that\nIndonesia did not need foreign loans because the state finances were\ndeemed strong.<\/p>\n
But, on the other hand, Indonesia is reported to be preparing to\nissue international debt in China under the Panda Bond scheme. According\nto Budiawan, this move raises questions about the consistency of the\ngovernment\u2019s communications regarding fiscal conditions. \u2018This is the\nsecond paradox: the plan to issue Panda Bonds amid a narrative of plenty\nof money,\u2019 he said.<\/p>\n
In addition, Budiawan highlighted the plan to activate a bond\nstabilisation fund (BSF) to maintain government bond prices from falling\nand yields from jumping. He said such a policy is essentially a form of\ngovernment intervention in the bond market.<\/p>\n
He regarded this intervention as complementing other stabilisation\nmeasures previously taken in the foreign exchange and equity markets. If\nexpanded, Budiawan fears Indonesia will become increasingly dependent on\ninterventions to maintain financial sector stability.<\/p>\n
Budiawan questioned the source of funds for the bond stabilisation\nprogramme. Given the subdued fiscal conditions, he argued that it would\nbe almost impossible for the government to use the APBN directly to buy\nback government bonds before they mature.<\/p>\n
\u2018The government itself is, in fact, needing funds in large amounts to\nfinance the budget deficit and to pay maturing bonds,\u2019 he explained.<\/p>\n
He reminded that using public funds to buy bonds could disrupt\npriority spending such as subsidies, infrastructure development, and\nsocial programmes. In addition, APBN use must also align with budget\nitems approved by the DPR, so it cannot be used arbitrarily beyond\nstatutory provisions.<\/p>\n
According to Budiawan, the parties likely to be relied upon to\nsupport the bond market would be Bank Indonesia and the Himbara banks.\nHowever, if bond purchases are carried out on a large scale, Bank\nIndonesia risks changing its function into a fiscal financing\ninstitution because it would have to hold large quantities of government\nbonds in its balance sheet.<\/p>\n
He also believes that interventions in bond prices could distort the\nmarket. Prices of bonds held up high and yields kept low would no longer\nreflect actual risk. \u2018Intervention makes bond prices appear relatively\nhigh and yields appear relatively low,\u2019 he said.<\/p>\n
According to Budiawan, such conditions could prompt investors to sell\nif they believe bond prices are too high as a result of intervention.\nMoreover, new bonds in the primary market could be unattractive to\ninvestors due to perceived low yields.<\/p>\n
On the other hand, Budiawan says the current pressure on the rupiah\nis not merely a monetary technical issue but a structural problem in the\nnational economy. He argues that the root of the rupiah\u2019s weakness stems\nfrom a structural current account deficit and dependence on foreign\ncapital inflows and external debt.<\/p>\n
\u2018This is what has happened all along. The current account deficit is\nclosed with debt, which keeps the rupiah depreciating slowly each year,\u2019\nhe explained.<\/p>\n
He noted that Indonesia\u2019s foreign exchange reserves in the first four\nmonths of this year fell by about $10.3 billion, from $156.5 billion to\n$146.2 billion. This condition increases pressure on the rupiah.<\/p>\n
Budiawan projects that if this situation continues without structural\nreform, the rupiah could breach Rp 18,000 per US dollar and head toward\nRp 20,000 per US dollar.<\/p>\n
Therefore, he assessed that calls for the Governor of Bank Indonesia\nto resign are not entirely appropriate. In his view, the rupiah issue is\nmore due to weak structural components of the national economy,\nbeginning with the \u2026<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/government-urged-to-manage-fiscal-policy-more-effectively-1779546152", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }