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Prabowo's economic policies put investors on edge
National Economic Council (DEN) member Chatib Basri acknowledges that the current administration has little room to boost growth through monetary or fiscal policy, making structural reform the only viable option.
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A panel discussion featuring (left to right) The Jakarta Post editor in chief M. Taufiqurrahman, Centre for Strategic and International Studies (CSIS) executive director Yose Rizal Damuri, Bahana Sekuritas head of equity research Satria Sambijantoro and the Post's business editor Mark Lempp, is held during the Post’s Privé Series event on Thursday in Jakarta. (The Jakarta Post/Okky Ardya)
D
espite little chance of lowering benchmark interest rates amid a strengthening United States dollar and highs cost of bond issuance, the Indonesian government is pushing for growth while relying on budget cuts to finance key programs like the free nutritious meal program and the new sovereign wealth fund, Danantara.
However, economists argue that President Prabowo Subianto’s economic policies in his first 100 days have been marked by “confusion” and “uncertainty”, creating negative sentiment that is partly reflected in the stock market’s decline and the rupiah’s weakening.
Former finance minister Chatib Basri noted that Bank Indonesia (BI) had little room to lower its benchmark interest rate to spur economic growth unless the US Federal Reserve did the same, which was unlikely given inflationary US economic policies, such as import tariff hikes.
The seasoned economist, who also sits on the newly revived National Economic Council (DEN), pointed out that expanding fiscal policy was equally challenging due to high market interest rates for government bonds and the need to manage an already sizable budget deficit.
These limitations left structural reform as the only viable path to achieving President Prabowo’s ambitious target of 8 percent GDP growth by 2029, according to Chatib.
“We need to address the issue of regulatory certainty and remove bureaucratic hurdles. The government is doing it right now,” Chatib said during his opening remarks at The Jakarta Post’s first Privé Series event on Thursday.
One area of potential reform was tax administration, he suggested, noting that many businesses deliberately kept their revenue below Rp 4.8 billion (US$291,842) to qualify for the 0.5 percent tax rate.
