Government Urged to Manage Fiscal Policy More Effectively
Managing Director for Political Economy and Policy Studies (PEPS), Anthony Budiawan, assesses that Indonesia’s fiscal condition is increasingly under pressure as state revenue weakens and debt-service payments rise. He says various indicators show the national fiscal health is deteriorating, yet the government continues to project an optimistic narrative that the state finances are strong with the claim that ‘we have plenty of money’. ‘Indonesia’s fiscal position is increasingly worrying. State finances are weakening,’ he said in a formal statement on Tuesday, 19 May.
He highlighted that the revenue-to-GDP ratio fell sharply to just 9.3% in the first quarter of 2026. The figure is described as the lowest among the ASEAN-7 countries. At the same time, debt interest payments rose to 25.1% of revenue, a level deemed to threaten fiscal sustainability.
‘Anyone who looks at these ratios clearly would say that Indonesia’s fiscal position is not healthy,’ he said.
Nevertheless, Budiawan said the government continues to frame the situation as safe. He said the Minister of Finance has repeatedly stated that Indonesia’s finances are healthy and strong, with the narrative that ‘we have plenty of money’. According to Budiawan, such communication is not relevant to the conditions on the ground. ‘This kind of narrative does not help at all,’ he charged.
He even suggested the narrative risks provoking public antipathy because it is seen as not reflecting the real conditions. He said the government should be careful not to give the impression of disseminating misinformation to the public.
Budiawan also referenced the visit of the Finance Minister Purbaya to Washington, DC, recently to meet with several leaders of international institutions. After the visit, reports emerged that the government rejected a loan offer worth around $25–35 billion on the grounds that Indonesia did not need foreign loans because the state finances were deemed strong.
But, on the other hand, Indonesia is reported to be preparing to issue international debt in China under the Panda Bond scheme. According to Budiawan, this move raises questions about the consistency of the government’s communications regarding fiscal conditions. ‘This is the second paradox: the plan to issue Panda Bonds amid a narrative of plenty of money,’ he said.
In addition, Budiawan highlighted the plan to activate a bond stabilisation fund (BSF) to maintain government bond prices from falling and yields from jumping. He said such a policy is essentially a form of government intervention in the bond market.
He regarded this intervention as complementing other stabilisation measures previously taken in the foreign exchange and equity markets. If expanded, Budiawan fears Indonesia will become increasingly dependent on interventions to maintain financial sector stability.
Budiawan questioned the source of funds for the bond stabilisation programme. Given the subdued fiscal conditions, he argued that it would be almost impossible for the government to use the APBN directly to buy back government bonds before they mature.
‘The government itself is, in fact, needing funds in large amounts to finance the budget deficit and to pay maturing bonds,’ he explained.
He reminded that using public funds to buy bonds could disrupt priority spending such as subsidies, infrastructure development, and social programmes. In addition, APBN use must also align with budget items approved by the DPR, so it cannot be used arbitrarily beyond statutory provisions.
According to Budiawan, the parties likely to be relied upon to support the bond market would be Bank Indonesia and the Himbara banks. However, if bond purchases are carried out on a large scale, Bank Indonesia risks changing its function into a fiscal financing institution because it would have to hold large quantities of government bonds in its balance sheet.
He also believes that interventions in bond prices could distort the market. Prices of bonds held up high and yields kept low would no longer reflect actual risk. ‘Intervention makes bond prices appear relatively high and yields appear relatively low,’ he said.
According to Budiawan, such conditions could prompt investors to sell if they believe bond prices are too high as a result of intervention. Moreover, new bonds in the primary market could be unattractive to investors due to perceived low yields.
On the other hand, Budiawan says the current pressure on the rupiah is not merely a monetary technical issue but a structural problem in the national economy. He argues that the root of the rupiah’s weakness stems from a structural current account deficit and dependence on foreign capital inflows and external debt.
‘This is what has happened all along. The current account deficit is closed with debt, which keeps the rupiah depreciating slowly each year,’ he explained.
He noted that Indonesia’s foreign exchange reserves in the first four months of this year fell by about $10.3 billion, from $156.5 billion to $146.2 billion. This condition increases pressure on the rupiah.
Budiawan projects that if this situation continues without structural reform, the rupiah could breach Rp 18,000 per US dollar and head toward Rp 20,000 per US dollar.
Therefore, he assessed that calls for the Governor of Bank Indonesia to resign are not entirely appropriate. In his view, the rupiah issue is more due to weak structural components of the national economy, beginning with the …