JAKARTA, May 20 (Reuters) – Indonesia’s President Prabowo Subianto on Wednesday unveiled ambitious targets for next year’s fiscal deficit and economic growth and promised measures to strengthen institutions amid continued concerns over his government’s policymaking.
In a rare address to parliament, Prabowo, whose administration has come under intense scrutiny this year over its handling of the $1.4 trillion economy, set a target for the 2027 fiscal deficit of between 1.8% and 2.4% of gross domestic product, sharply lower than the 2.9% outlook for this year.
The president announced an economic growth target for next year of between 5.8% and 6.5% with inflation at 1.5% to 3.5%, and pledged to boost food self-sufficiency and reform institutions to draw investment, while ensuring a place for the private sector in an increasingly state-oriented economy.
“If we stay united and work together, private companies, SMEs, governments, regional or central, everyone has same calling – we can create magnificent prosperity,” Prabowo said, adding that the country wants and needs private sector involvement.
CREDIT RATING OUTLOOK CUTS
The address follows a turbulent few months for the G20 economy, the largest in Southeast Asia, with Moody’s and Fitch earlier this year cutting their credit rating outlooks to negative from stable, citing reduced policymaking credibility and predictability, and concerns about a potential breach of a 3% fiscal deficit ceiling.
The moves followed transparency issues flagged in January by global index provider MSCI, which warned Indonesia could potentially be downgraded to frontier market status. MSCI’s announcement triggered a market rout of more than $120 billion.
A potential revision to the long-held fiscal deficit limit has also undermined investor confidence in Indonesia as Prabowo forges ahead with big-spending welfare projects, such as his flagship $20 billion free school meal programme, despite weak revenue collection.
Prabowo said on Wednesday revenue collection for next year was targeted at 11.82% to 12.40% of GDP, and state expenditure at 13.62% to 14.80% of GDP.
TIGHTENED GRIP ON KEY RESOURCES
To boost revenue, Prabowo confirmed on Wednesday the creation of a new state agency to manage exports of some of Indonesia’s top commodities, including nickel, palm oil, and thermal coal, to arrest what he said were revenue losses to the tune of $908 billion over the past 34 years.
Global commodities powerhouse Indonesia is the world’s largest exporter of thermal coal and palm oil.
Rumours of the plan spooked the market on concerns that it could lead to changes in pricing mechanisms and squeeze trader margins, with the main stock index shedding 3.5% on Tuesday and close to 2% on Wednesday.
“I’m sure every patriot will support this – the earth, water, and all the resources within must be enjoyed by all Indonesians,” Prabowo said.
Prabowo said the target for the average rupiah exchange rate for 2027 would be at 16,800 to 17,500 per dollar.
The rupiah has sunk to a series of record lows despite interventions by the central bank, with the latest slide on Wednesday.
(Reporting by Jakarta Bureau; Writing by Martin Petty; Editing by David Stanway and Kate Mayberry)
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