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aditya Perdana, a political lecturer at the University of Indonesia, noted that while certain measures may provide immediate relief, they are not sustainable over the long term. “That is very useful in the short term, but to do it over five years, he can’t.”
One key limitation will be Indonesia’s cap on its budget deficit, set at 3% of GDP. The expanded food program will add 0.7 percentage point to economic growth, but at a cost of another $6 billion in state funds, while the move to scale back the tax hike could cost some $4.6 billion in potential revenue.
At the same time, an aid package meant to soften the impact of higher value-added tax — discounted electricity rates, income tax deductions, and free rice — remains intact, adding to pressure on the budget.
Investors are closely monitoring Prabowo’s pledge to abide by the legal limit of the budget deficit despite his ambitious spending, and awaiting the outcome of his recent order for officials to claw back up to $19 billion in planned spending this year to help fund priority initiatives like the free meal program.
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Implementing the budget cuts may prove challenging, and projected efficiency gains might be “overambitious,” said Kunal Kundu, an economist at societe Generale SA.
Indonesia’s Economic Outlook: Populist spending and Structural Challenges
Table of Contents
- Indonesia’s Economic Outlook: Populist spending and Structural Challenges
- Key Economic Indicators
- External Links
- Internal Links
- Conclusion
- Interview with Economists on Indonesia’s Economic Outlook
- Q: What are your thoughts on the recent populist spending measures in Indonesia?
- Q: How do you assess the current economic growth prospects for Indonesia?
- Q: What are the main structural challenges facing the Indonesian economy?
- Q: How do you view the recent policy rate cut by Bank indonesia?
- Conclusion
The Indonesian economy is at a crossroads, with recent policy decisions signaling a shift towards populist spending. Anders Faergemann,co-head of emerging-markets global fixed income at Pinebridge Investments in London,noted that the watering down of the VAT increase plans had prompted this change. This move comes as the economy grapples with consecutive quarters of slower growth, putting a damper on overall economic expansion.
Bank Indonesia recently cut its policy rate despite a faltering rupiah, citing a weaker outlook for household consumption and exports. Economists largely expect GDP growth to remain at 5% this year before rising slightly to 5.1% in 2026. some analysts have lauded recent pro-growth measures, but these moves are not without their critics.
Brian Lee,an economist at Maybank Securities Pte,believes that the current pro-growth measures are timely but cautions that their impact may take time to filter through to spur consumption. The Indonesian economy faces deeper, structural challenges, according to Josua Pardede, an economist at PT Bank Permata in Jakarta.He argues that the impact on growth might potentially be limited if these populist policies are not accompanied by broader reforms to employment and investment conditions.
Key Economic Indicators
| Indicator | Current Value | Expected Value (2026) |
|——————–|—————|———————–|
| GDP Growth Rate | 5% | 5.1% |
| Policy Rate | Cut | To be determined |
| Consumer Outlook | Weak | To be determined |
External Links
Internal Links
Conclusion
Indonesia’s economic future hinges on the balance between immediate populist spending and long-term structural reforms. While recent measures aim to stimulate growth,sustained economic health will require addressing deeper challenges in employment and investment conditions.
Interview with Economists on Indonesia’s Economic Outlook
Q: What are your thoughts on the recent populist spending measures in Indonesia?
Anders Faergemann: The recent shift towards populist spending in Indonesia, particularly the watering down of VAT increase plans, signals a focus on immediate economic relief. While this may provide short-term benefits, it could possibly delay necessary fiscal reforms.
brian Lee: The pro-growth measures are certainly timely, but their impact on consumption may take time to materialize. It’s crucial to remember that these measures are just a start,and their effectiveness will depend on how well they are implemented.
Q: How do you assess the current economic growth prospects for Indonesia?
Kunal Kundu: The indonesian economy is facing challenges with slower growth for consecutive quarters.While the current GDP growth rate is projected to be around 5% this year, with a slight rise to 5.1% in 2026, these figures suggest a moderate growth trajectory.
Josua Pardede: The economic growth prospects are indeed modest. The economy needs to address deeper, structural challenges to achieve more robust and sustainable growth.
Q: What are the main structural challenges facing the Indonesian economy?
Josua Pardede: The structural challenges include issues in employment and investment conditions. These need to be addressed through long-term reforms to ensure sustained economic health.
Brian lee: Additionally, infrastructure advancement and human capital investment are critical areas that require attention. These investments can enhance productivity and create a more favorable business environment.
Q: How do you view the recent policy rate cut by Bank indonesia?
Anders Faergemann: Bank Indonesia’s decision to cut the policy rate despite a faltering rupiah indicates a focus on supporting household consumption and exports.However, this move needs to be monitored closely to ensure it aligns with broader economic objectives.
Conclusion
Indonesia’s economic future depends on striking a balance between immediate populist spending and long-term structural reforms. While recent measures aim to stimulate growth, sustained economic health will require addressing deeper challenges in employment and investment conditions.
