Indonesia’s parliament is preparing to revise its state finance laws, with a focus on aligning them with the newly established sovereign wealth fund, Danantara. This move comes amid concerns from investors about fiscal sustainability, especially in light of President Prabowo Subianto’s ambitious spending plans.
Focus on Danantara
Mukhamad Misbakhun, head of the parliamentary financial commission, stated that the upcoming revisions would not target changes to the fiscal deficit limits, which currently cap the annual budget deficit at 3% of GDP and public debt at 60% of GDP. Instead, the revisions aim to shift the management of state investments from the finance minister to Danantara. This includes redirecting dividends from state companies to Danantara, removing them as a source of income for the state budget.
The financial commission plans to draft an omnibus bill that will revise several financial laws simultaneously. This legislative effort is intended to support the establishment of Danantara, which was launched by President Prabowo in February last year. Danantara now manages all state-owned companies, with assets exceeding $900 billion. A unit under Danantara has also been tasked with becoming the sole exporter of Indonesia’s strategic commodities, such as coal, palm oil, and ferroalloys.
Investor Concerns
Investors are closely monitoring these developments due to potential implications for Indonesia’s fiscal policies. Fitch Ratings, one of the agencies that downgraded Indonesia’s credit rating outlook this year, cited possible changes to fiscal and debt limits as factors influencing their decision. However, Misbakhun reassured that the current legislative focus does not include altering these fiscal rules.
The parliamentary financial commission will begin work on the omnibus bill once revisions to the financial system law are completed. This law is expected to expand the central bank’s mandate to emphasize its role in promoting economic growth, aligning with President Prabowo’s target of achieving an annual growth rate of 8% during his term.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
