Prabowo's Conditions for Changing Budget Deficit Limits

President Prabowo Subianto has stated that the government will maintain the budget deficit limit at 3 per cent of gross domestic product (GDP). According to Prabowo, his administration is committed to preserving fiscal discipline, except in the event of a major crisis.

The Head of State emphasised that the 3 per cent deficit limit will only be changed if an emergency situation arises, such as during the Covid-19 pandemic. Prabowo disclosed this in an exclusive interview with international media Bloomberg, published in an article titled “Prabowo Open to Breach Indonesia Deficit Cap Only During Crisis”. In that piece, Prabowo referred to the deficit limit as an important instrument for maintaining discipline in state financial management.

“The deficit limit is a good tool to discipline ourselves. We have no plans to change it except in very large emergency situations like Covid-19,” said Prabowo at Hambalang, West Java, as cited in a written statement from the Indonesian Government Communications Agency. “I hope we do not need to change it.”

Indonesia has set a maximum budget deficit limit of 3 per cent of GDP since the early 2000s, following the Asian financial crisis. This provision has long been claimed as one of the pillars of fiscal discipline that investors monitor.

Prabowo emphasised his commitment to fiscal discipline, despite many other countries having abandoned strict budget deficit targets. He noted that Indonesia previously wished to emulate the European Union’s rule, which limits fiscal deficit to a maximum of 3 per cent of GDP. However, many countries in that region no longer adhere to it.

Nevertheless, Prabowo rejected the idea proposed by some economists to pursue growth by substantially increasing debt. He revealed that since childhood, his parents taught him to believe that spending must be adjusted to one’s ability.

“Do not spend more than what we produce,” said Prabowo. “That is the basic principle of life to be able to survive.”

On the other hand, Prabowo believed Indonesia is more fortunate compared to other countries. This is because Indonesia possesses natural resources such as palm oil and coal that remain relatively inexpensive and can guarantee national resilience.

At the same time, the government will continue to develop geothermal energy, solar power, hydroelectric power, and biofuels as alternative energy sources. “If we can get through this, within two years we will be very efficient,” said Prabowo. “We will be very, very independent from external sources.”