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View all search resultsRocking the boat in a storm
As global headwinds mount and leadership wavers, Indonesia's push to scrap its 3 percent deficit cap risks trading hard-won market credibility for reckless spending.
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Finance Minister Suahasil Nazara speaks at the APBN Kita press conference in Jakarta on Sept. 19, 2026.
(Government Communication Agency/- )
I
ndonesia’s long-standing 3 percent fiscal deficit cap is being challenged by lawmakers at precisely the moment when the country can least afford to weaken its fiscal anchor.
The House of Representatives’ push to revise the statutory ceiling comes as international investors and rating agencies are already scrutinizing the nation's fiscal discipline, wary of the government’s lavish spending plans for flagship initiatives such as the free nutritious meal program and Red and White Cooperatives.
Compounding these concerns, Indonesia is actively pursuing membership in the Organisation for Economic Co-operation and Development (OECD), an accession process in which macroeconomic stability is a decisive benchmark.
External headwinds are intensifying the strain. On Sept. 16, the United States Federal Reserve raised its benchmark interest rate by 25 basis points to a target range of 3.75 to 4 percent, its first hike since 2023, driven by resurgent inflation fueled partly by increasing energy prices from the US-Israeli war on Iran.
Higher US yields inevitably expose emerging markets like Indonesia to capital flight and currency depreciation. Indeed, the rupiah slid to around 17,850 per US dollar by Sept. 23, down roughly 2 percent from its monthly high of 17,500.
In response, Bank Indonesia (BI) opted to hold its benchmark rate steady on Sept. 23. Analysts widely viewed the decision as a “tactical pause” rather than a sustainable stance, given that a narrowing interest-rate differential with the federal funds rate leaves the central bank with dwindling room to maneuver.
Exacerbating these macroeconomic pressures are acute questions surrounding domestic institutional stability. BI governor Perry Warjiyo abruptly resigned in July, offering only “personal reasons” for his departure. Senior deputy governor Destry Damayanti, a capable technocrat who nevertheless possesses limited experience in navigating intense political crosscurrents, was subsequently sworn in to take the helm.
