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Today's Headlines Fiscal Policy

  • Sri Mulyani: Indonesian Economy Affected by Global Uncertainties

    Sri Mulyani: Indonesian Economy Affected by Global Uncertainties

    Indonesian Finance Minister Sri Mulyani Indrawati expects global uncertainties to linger in 2017 and continue to have a significant impact on the economy of Indonesia. Uncertainties are caused by the US economy, Donald Trump's victory in the US 2016 presidential election, the economic and monetary policies of advanced economies and the economic slowdown of China. She added that the 2017 State Budget, which set conservative targets in terms of Indonesia's GDP growth as well as government revenue and spending, was designed with these global challenges in mind.

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  • Economy of Indonesia: Financial Sector is Stable, Says KSSK

    Economy of Indonesia: Financial Sector is Stable, says KSSK

    The Financial System Stability Committee (in Indonesian: Komite Stabilitas Keuangan, or KSSK) stated that Indonesia's economy is stable. The KSSK further informed that it will raise efforts to enhance market confidence in Indonesia's financial sector. The KSSK, an Indonesian institution that is responsible for preventing financial crises, consists of a selection of key policymakers from the Finance Ministry, Bank Indonesia, Financial Services Authority (OJK) and Deposit Insurance Corporation (LPS).

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  • Fiscal Update Indonesia: Can the 3% of GDP Budget Deficit Cap Be Widened?

    Fiscal Update Indonesia: Can the 3% of GDP Budget Deficit Cap Be Widened?

    A commission in Indonesia's House of Representatives advises the government to replace a law that sets a maximum budget deficit limit of 3 percent of gross domestic product. This law was implemented in 2003 after Indonesia experienced the devastating effects of the Asian Financial Crisis in the late 1990s. Traumatic experiences made the government decide to prioritize prudent fiscal policies. Although it is unclear what the exact consequences are if the government would breach this cap (perhaps an impeachment bid could be launched), governments always respected the cap.

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  • Fiscal Credibility: Indonesia's Tax Target Realistic in 2017 Budget Draft

    Fiscal Credibility: Indonesia's Tax Target Realistic in 2017 Budget Draft

    Indonesia has finally become more realistic in terms of setting its tax revenue target. In the 2017 State Budget draft proposal that was sent for approval by the central government to Indonesia's House of Representatives (DPR) earlier this week, it set the 2017 tax revenue target at IDR 1,271.7 trillion (approx. USD $97.1 billion), down 3.6 percent from the target of IDR 1,318.9 trillion worth of tax revenue in the 2016 budget. A more realistic tax revenue target will enhance Indonesia's fiscal credibility.

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  • Fiscal Credibility Indonesia Supported by Tax Amnesty Program

    Fiscal Credibility Indonesia Supported by Tax Amnesty Program

    Foreign investors have increased holdings of government bonds by IDR 96.45 trillion (approx. USD $7.4 billion) between the start of 2016 and Wednesday 20 July 2016. In total, foreigners now hold IDR 654.97 trillion (approx. USD $50 billion) worth of Indonesia's government bonds. This reflects strong investor appetite for (relatively) safer state assets amid economic uncertainties related to looming monetary tightening in the USA, the Brexit issue and sluggish global economic growth, but it also shows that foreign investors have confidence in Indonesia's fiscal fundamentals.

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  • Credit Ratings Indonesia: Standard & Poor's, Fitch Ratings & Moody's

    Credit Ratings Indonesia: Standard & Poor's, Fitch Ratings & Moody's

    Slowly but surely Indonesia is obtaining the investment grade rating from the world's three key credit rating agencies. Fitch Ratings already reinstated Indonesia's investment grade rating in 2011, a step that was followed by Moody's Investors Service in 2012. Although Standard & Poor's (S&P) has been more careful, there emerged speculation that S&P will assign the investment grade status to Indonesia soon (perhaps in June 2016). Last week, a S&P team visited Indonesia - to study the country's latest policy reforms and developments - and signaled that its assessment is positive.

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  • Indonesia's State Budget Deficit Approaching Legally Mandated Cap

    A Finance Ministry official said Indonesia's state budget deficit is likely to exceed the projected IDR 300 trillion (approx. USD $22 billion) in 2015, pushing the deficit to 2.7 percent of Indonesia's gross domestic product (GDP), dangerously close to the maximum 3 percent of GDP cap that is set by a 2003 law. In the original 2015 State Budget the government targeted a budget deficit of 1.9 percent of GDP. This target was then revised to 2.2 percent in September. However, another revision is needed due to poor tax revenue collection.

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  • Reforming the Subsidized Fuel Price Policy of Indonesia

    Reforming the Subsidized Fuel Price Policy of Indonesia

    The Indonesian government has further reformed its decade-old fuel subsidy policy in a move to streamline - and make more structural use of - public spending. The latest change is effective from today (1 January 2015) and thus Indonesia moved a step closer to applying a market-based price mechanism. The government now uses a fixed diesel subsidy of IDR 1,000 (USD $0.08) per liter, while subsidy for low-octane gasoline is scrapped altogether (however the government will account for gasoline distribution costs outside Java, Madura and Bali).

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  • Indonesian Government Implements 3rd Fiscal Stimulus Package in July

    Indonesian Government Implements 3rd Fiscal Stimulus Package in July

    The Indonesian government plans to introduce its 3rd fiscal policy package, aimed at boosting investments in Indonesia, this month. Deputy Finance Minister Bambang Brodjonegoro said that it involves tax incentives (tax allowance and tax holidays). The government will also make it more attractive for foreign companies to re-invest profits in Indonesia. Coordinating Economic Minister Chairul Tanjung added that a dividend tax exemption for both domestic and foreign investors is possible, provided that dividend is re-invested in Indonesian assets.

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  • Notes on Indonesia's GDP Growth, Current Account and Investment

    The Asian Development Bank (ADB) expects Indonesia's economic growth this year to slow slightly compared to the 5.78 percent growth rate recorded in 2013. ADB's Country Director for Indonesia, Adrian Ruthenberg, said that GDP growth of Southeast Asia's largest economy is expected to slow to 5.7 percent in 2014 but will accelerate to 6 percent in 2015. The ADB's forecast is based on the assumption that Indonesia's legislative and presidential elections will run smoothly as well as continued government effort to improve the investment climate.

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Latest Columns Fiscal Policy

  • Indonesia's Monetary & Fiscal Policies Require More Harmony

    Indonesia's Monetary & Fiscal Policies Require More Harmony

    At its latest monthly policy meeting the central bank of Indonesia (Bank Indonesia) left its interest rate regime unchanged with the benchmark BI rate at 6.50 percent (this month the bank is set to adopt the seven-day reverse repurchase rate - reverse repo - as the new benchmark rate). Bank Indonesia's decision to leave interest rates unchanged was a surprise move given that the nation's inflation is low, the rupiah is strengthening, but overall economic growth has remained sluggish. This context would actually justify a moderate interest rate cut of 25 basis points.

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  • Reforming Indonesia's Tax System is Key to Unlock S&P's Investment Grade

    Reforming Indonesia's Tax System is Key to Unlock S&P's Investment Grade

    In the past two weeks, two of the big international credit rating agencies released new reports about Indonesia's fiscal situation. Both agencies affirmed Indonesia's sovereign debt rating: Fitch Ratings kept Indonesia at BBB-/stable (investment grade class) and Standard & Poor's (S&P) maintained Indonesia at BB+/positive (highest junk level, one notch below investment grade). S&P's decision to keep Indonesia within the junk level category was met with disappointment among investors and Indonesian government officials but perhaps not that surprisingly.

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  • New Regulation on Mandatory Use of Rupiah in Indonesia

    New Regulation on Mandatory Use of Rupiah in Indonesia

    On March 31, 2015, Bank Indonesia issued regulation number 17/3/PBI/2015 concerning Mandatory Use of Rupiah in the Territory of Indonesia (BI Regulation). In the much discussed Law number 7 of 2011 concerning Currency the mandatory use of rupiah in Indonesia was already regulated, however could be exempted in case the contract parties had agreed in writing to the terms of payment in a currency other than rupiah. Under the new BI regulation the terms on the use of foreign currencies are further restricted. In this column we discuss the most important changes based on the BI Regulation.

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  • Moody's Investors Service on Strength & Risks of the Indonesian Economy

    Moody's Investors Service on the Indonesian Economy

    Moody's Investors Service, a global bond credit rating agency, assigned a definitive rating of Baa3 (stable outlook) to Indonesian government notes maturing in 2025 and 2045 (these notes are issued under the government’s global medium-term note program). Moody’s said in a press release on Tuesday (13/01) that the Baa3 government bond rating is supported by the country’s narrow fiscal deficits, low public indebtedness, healthy economic growth prospects, and the large size of Indonesia’s economy.

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  • Fitch Ratings Keeps Indonesia’s Sovereign Rating at BBB-/Stable

    International credit rating agency Fitch Ratings maintained Indonesia’s sovereign rating at BBB-/stable outlook (investment grade). Baradita Katoppo, President Director of Indonesia’s Fitch Ratings branch, said that the firm is positive about the country’s financial fundamentals and prudent fiscal policy as the central bank has showed to prefer stability over growth, resulting in slowing credit growth and rising foreign exchange reserves in Southeast Asia’s largest economy. Economic growth is expected to fall to 5.1 percent (y/y) in 2014.

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