In Anticipation of Iran War Effects, Airlangga Proposes Government Regulation to Replace Law on State Budget Deficit
Jakarta — Coordinating Minister for Economic Affairs Airlangga Hartarto has proposed issuing a Government Regulation in Lieu of Law (Perppu) to President Prabowo Subianto if global oil prices continue to surge beyond the assumptions stipulated in the 2026 State Budget Law.
Airlangga stated that world oil prices risk constraining government fiscal position, driven by conditions of global geopolitical uncertainty, particularly the conflict in the Middle East between the United States and Israel with Iran. This conflict has disrupted oil supply in global markets.
“With this Perppu, the government will have flexibility for changes,” said Airlangga during a full cabinet meeting at the State Palace in Jakarta on Monday, 16 March 2026.
Airlangga based the Perppu proposal on various risk scenarios he had calculated. These scenarios account for the effects of the Middle East conflict lasting between six to ten months, with average global crude oil prices rising to US$97 per barrel and US$115 per barrel.
Beyond oil prices, Airlangga’s scenarios also considered the exchange rate against the US dollar, government securities yields, and economic growth that could be disrupted by the conflict, thereby further pressuring the 2026 state budget deficit.
Details of the scenarios are as follows:
Scenario one: Indonesian crude oil price (ICP) at US$86 per barrel, exchange rate of Rp 17,000 per US dollar, whilst the budget assumes Rp 16,500 per US dollar, with growth maintained at 5.3%, government securities yield 6.8% higher, then the state budget deficit is projected to reach 3.18%.
Scenario two, a moderate scenario, with ICP at US$97 per barrel, exchange rate of Rp 17,300, growth of 5.2%, government securities yield higher at 7.2%, resulting in a deficit of 3.53%.
Scenario three, a worst-case pessimistic scenario, with ICP at US$115 per barrel, exchange rate of Rp 17,500, growth of 5.2%, government securities yield at 7.2%, with a deficit of 4.06%.
“This means that with these various scenarios, maintaining a 3% deficit will be difficult, unless we cut spending and restrict growth,” said Airlangga.
A Government Regulation in Lieu of Law (Perppu) is an attributive authority of the President and not a mechanism directly submitted by the public or parliament. The requirements include pressing necessity, absence or inadequacy of existing laws, and inability to be addressed through normal legislation. Although the President establishes the Perppu, it still requires parliamentary approval.
If approved by parliament, the Perppu will be enacted as law; if rejected, the Perppu must be revoked or declared invalid. Once issued, any party feeling harmed can file a judicial review (constitutional test) with the Constitutional Court.
In the past five years, Indonesia has issued Perppu during the Jokowi presidency, namely the Perppu on Job Creation (Perppu 2/2022) and Perppu on Pandemic Response (Perppu 1/2020).