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Indonesia President Eyes Larger Coalition, Pledges Fiscal Management

Constitutional Court
Indonesia's president Prabowo Subianto (Photo: Reuters/ Imimasa Mayama)

Indonesia’s president-elect Prabowo Subianto will be prudent in fiscal management and uphold laws that limit public debt and annual budget deficits, the head of the biggest party backing Prabowo told Reuters on Thursday.

Foreign investors have been monitoring details of the incoming government’s fiscal stance, after ratings agencies warned programmes that Prabowo had pledged during his campaign would be costly and could undermine the country’s hard-earned reputation of fiscal discipline.

“We will manage the macroprudential side,” said Airlangga Hartarto, chairman of Indonesia’s second-biggest party Golkar, which is part of a coalition of four parties backing Prabowo. Airlangga is also the current chief economics minister.

“We will follow the law: public debt cannot exceed 60% (of GDP), (annual budget) deficit ceiling at 3% (of GDP),” he said in an interview.

The government’s guidance for next year’s fiscal gap is between 2.48% to 2.8% of GDP. This was decided in a meeting headed by outgoing President Joko “Jokowi” Widodo, with Prabowo in attendance, said Airlangga.

While this year’s fiscal deficit may swell to 2.8% of GDP, according to Airlangga, Indonesia’s government typically manages deficits at around 2% of GDP, except for during the pandemic.

Jokowi has included Prabowo in many economic meetings, such as policy discussions on food prices, to smooth the transition of power, Airlangga said, describing Prabowo’s upcoming term as a continuation of Jokowi’s 10-year tenure in office.

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Indonesia’s strict rules on fiscal limits were introduced in the aftermath of the late 1990s Asian financial crisis to reform public finance management.

Prabowo’s flagship programme of free lunches and milk for students and pregnant women has been a particular concern among
analysts. When fully implemented, the programme is expected to cost more than $28 billion.

Prabowo’s coalition won 48% of seats in parliament, but Airlangga said he is confident there would not be much opposition against his programmes.

Prabowo may broaden his coalition and control more than 60% seats in parliament if NasDem, a political party currently backing losing presidential candidate Anies Baswedan, jumps ship, Airlangga said.

Such a move is likely to come after the Constitutional Court rules on ongoing election disputes, Airlangga said.

Talks of changing alliances and political jockeying have made headlines in Southeast Asia’s largest economy after the election commission last month officially announced the outcome of presidential and parliamentary votes.

Source: Reuters