Indrawati Defends Indonesia Outlook, Prabowo Relationship

Sri Mulyani Indrawati Photographer: Dimas Ardian/Bloomberg Economics Photo by Dimas Ardian /Bloomberg

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(Bloomberg) — Indonesia’s finance minister presented a unified front with President Prabowo Subianto, stressing that the government is committed to fiscal discipline while rolling out the new leader’s priority programs. Bonds extended a rally.

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“We have a very good relationship. We have a very professional” relationship, Finance Minister Sri Mulyani Indrawati said in an interview with Bloomberg Television on Wednesday, when asked if she will remain in her post for the long term. “President Prabowo is very open, very frank in discussing what he wants. But at the same time, he also values the input coming from us.”

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Reports that Indrawati may leave Prabowo’s cabinet rattled markets earlier this year, raising concerns that the leader could pursue more aggressive spending to fund his campaign promises. She has since offered assurances that she is staying on as finance minister, a post she has held since 2016 under former President Joko Widodo.

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Bonds extended gains after Indrawati spoke Wednesday, with the yield on 10-year government bonds slipping to 6.7%. The rupiah held its earlier gain of 0.4% against the dollar in intraday trading, while stocks widened losses to 0.4%.

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Indrawati’s signals will reassure the market, especially bond investors, said Jeffrey Zhang, emerging market strategist at Credit Agricole in Hong Kong. Going forward, “the recent dollar softness and lower US Treasury yields would make Indonesian bonds more attractive for foreign investors,” he said.

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Investors are keeping a close eye on Indonesia’s fiscal outlook, with Prabowo planning to release a number of costly programs during his term. These include the distribution of free meals for students and expectant mothers, the building of 3 million low-cost homes a year, and the construction of an $80 billion sea wall.

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Speaking on the sidelines of the annual meeting of the Asian Infrastructure Investment Bank in Beijing, Indrawati acknowledged a “perception optic from outside” that Indonesia will simply pursue new initiatives and fresh spending. “But we continue holding the discipline right in this case, meaning that the total posture of the budget is still the same,” she said. 

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The finance chief said she still expects the budget deficit this year to come in at 2.5% of gross domestic product, as initially projected and well below the 3% ceiling mandated by law. Indonesia’s bond issuance will also be kept the same.

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Earlier this year, Prabowo ordered ministries and agencies to cut spending, and Indrawati said about 300 trillion rupiah ($18.4 billion) has been reallocated from other budget items to fund the president’s new programs. Some of Prabowo’s plans will also be rolled out over multiple years, she added.

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On the revenue side, a joint task force between the finance ministry and police will focus on potential revenues from law enforcement and tax compliance.

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The finance ministry is due to give its mid-year budget report to parliament in July, when it will usually update its projections for the fiscal deficit, spending, and borrowing.