Indonesian president-elect Prabowo Subianto is said to be considering removing legal limits on the country’s budget deficit as the incoming administration looks for wider leeway to spend, according to a report by the local news outlet Tempo.
Ahead of the start of his term on Oct 20, Prabowo has formed a team to study possible revisions to the State Finances Law that caps the fiscal deficit at 3% of gross domestic product and government debt at 60%, the Tempo report said, citing people it did not name. The law was signed in 2003 after the country recovered from the Asian financial crisis.
Changing the law would also allow Prabowo to push through with his plan to establish a standalone state revenue agency, separate from the Finance Ministry, the people said. Former chief justice Jimly Asshiddiqie, who is leading the team, told Tempo that they are preparing a legal framework to create the revenue body.
Said Abdullah, the Indonesian parliament’s budget committee chairman, reiterated on Tuesday his commitment to retaining the fiscal deficit ceiling, saying it is “important for future fiscal health”. That was also the position relayed to him by Prabowo’s transition team, he told reporters.
“If you look at future fiscal challenges, they are getting tougher and the space is getting narrower. I think President Prabowo will not tinker with the law,” he said.
It adds to further uncertainty around the fiscal outlook of Southeast Asia’s biggest economy that has spurred foreign fund outflows and pressured the rupiah. Investors are concerned that Prabowo could be loose with the budget after he said in May that the country needs to be “more daring” with spending as its debt and deficit metrics are lower than those of its peers.
According to Tempo, Prabowo is considering to remove fiscal constraints so he can deliver his campaign pledge of free school lunches, which is estimated to cost over 400 trillion rupiah ($25 billion) a year when fully implemented.
The next leader also needs to follow through with his promise to continue President Joko Widodo’s programmes, including the $34-billion new capital that is set to be inaugurated next month.
Bloomberg News had earlier reported that the incoming administration is planning to raise Indonesia’s debt-to-GDP ratio by 2 percentage points annually over the next five years — a move that would take it to a two-decade high of close to 50%. An adviser to Prabowo later denied the plan, saying they would observe fiscal prudence.