Indonesia’s Prabowo is exploring ways to remove fiscal deficit ceiling: sources
His plans to increase spending have put debt and currency markets on edge
INDONESIA’S incoming president Prabowo Subianto is exploring possibilities to remove the fiscal deficit and debt-to-GDP ratio ceilings, aiming to fund his campaign pledges, investigative magazine Tempo reported this week, citing unidentified sources.
Under Indonesia’s State Finance Law, introduced in the aftermath of the Asian financial crisis in the late 1990s, the government’s annual budget deficit is capped at 3 per cent of gross domestic product and the maximum debt-to-GDP ratio is 60 per cent.
Prabowo has set up a special team to review options to revise the laws to remove the fiscal limitations, as well as to create a new tax collection agency, according to the Tempo report, which cited three sources.
The team is being supervised by a former chief justice of the Constitutional Court, Jimly Asshiddiqie, Tempo said.
Jimly told Reuters on Tuesday (Jul 9) he has been supervising a team to review a range of laws, including the State Finance Law, but did not respond to questions on fiscal ceilings.
“I’m giving advice ... so the creation of the new tax agency would not violated any existing laws,” he said.
Prabowo’s economic team did not immediately respond to request for comment.
Prabowo’s plans to increase spending in South-east Asia’s largest economy have already put the debt and currency markets on edge. Some economists have flagged increasing fiscal risks under the incoming administration which has promised to boost economic growth to 8 per cent, from around 5 per cent now.
The rupiah hit four-year lows last month following a news report that Prabowo intends to raise the debt-to-GDP ratio to 50 per cent gradually, from under 40 per cent now, a plan that the president-elect’s economic team has denied.
Prabowo’s team has said the next government is committed to fiscal targets set by the current government, including the 2025 fiscal deficit within the range of 2.29 to 2.82 per cent of GDP.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
