Indonesia Finance Chief Avoids Prabowo Turf Wars

Indonesia has a fiscal credibility problem, and that's prompted foreign funds to make an exit from the country. How do you intend to fix that? Can you fix that in the first 100 days? Well, of course. Thank you so much for having this interview. I'm very glad that we can talk to the international community, uh, through Bloomberg and, uh, appreciate that a lot. Uh, Indonesia has been very, very credible in the last 20, 25 years. Our fiscal rule sticks. Uh, of course, from time to time, we have to renew our commitment. We have to tell the audience that, uh, we intend to continue to do so, observe the fiscal rule. And in making sure that, uh, the state budget, our fiscal policy, the state budget is a state budget that continue to grow the economy, the state budget that protects the people, and the state budget that continue to be credible and healthy. So these three combination, I think, is very important to be recognized by our international community, the business sector, the market, and so on. Uh, we do that. Uh, but then, of course, from time to time, if we look at the Indonesia in the last 20 or 20 years since we do the, uh, state finance in the modern way, we we know that the different challenges are always facing us. And of course, Covid provided different challenges. And then right now, the global headwinds, uh, what happens with the global, uh, tension. The geopolitical tension is very, very important to be , for us to watch very carefully and then act accordingly. If you say there is fiscal credibility, is the issue with the communication. Uh, communication is one thing, and it's one of the, uh, one of the important thing that he communities are waiting for us. The other thing is also the quality of the policy. The policy that can allow us to grow. The policy that can be put on the implementation. And sometimes the policy is something that must be communicated as well, not only the state budget numbers, but more importantly, is the. What is the intention of the policy? Uh, sometimes the policy is not well understood in the short term, but it makes sense in the long term or in the medium. So when you see you'll be doing things differently than you would be more open to communicating, ensuring that policies understood by the international community, would you be different from your predecessor? I will maintain the communication, the consistency. Uh, I think in my previous task, in my previous assignment, when I was the chairman of the fiscal policy office, when I did my term as the vice minister of finance, we maintained communication very closely with the communities, with the analysts, with the investors, and so on is very important because Indonesia is never completely detached from the global community and what happens in the economy. One of the key issues for international investors is the 3% budget deficit. You say you are committed to 3%. Is 3% hindering Indonesia from getting to where it needs to be, is it hindering Indonesia from getting to 8% growth that the president himself wants? Yeah, well, the 3% budget deficit is the annual parameter that is recognized by our law. We are working with the current law. Uh, it is also recognized as, uh, by our investors as the symbol of how disciplined we are. It has been there since 2004. 2003. Since the Asian financial crisis. Uh, even right after the Asian financial crisis, we Indonesia rewrote the rulebook. Uh, what happens with this country. The state finance law was enacted 2003. Uh, and then uh, state treasury law was enacted in 2004. And then according to that, we start to look at the, um, uh, we we engage with the market more intensively. Previously, if you follow this for a long time, as we know, we have the Consultative Group on Indonesia where whenever Indonesia would like to borrow from the international community, we talk to the to the Consultative Group on Indonesia. After death, we start to talk to the market. Uh, so we have to understand the logic of the market, but we should not be completely different. Uh, sorry. We should not be completely driven only by the market. We have to set the path for our state objectives. But we have to communicate with the market. Might you have to rethink the 3% to ensure that you get to the growth that you are targeting. Right now, we are committed to the 3% fiscal rule and maximum 60% of the debt to GDP ratio. That's signaling the, uh, confidence of the market that we can continue to do this. But Parliament is in discussion to perhaps rethink 3%. Well, actually, it's not only the parliament, but the media is talking about it. You are asking me about the 3%. But then our discussion about this, we continue to observe the 3% budget deficit maximum per year. Minister, can Indonesia get to 8% growth without expanding its debt? Well, it's a logic of touching the most important part of the economy. Let me put it this way. If you look at the statistics, uh, the government consumption, which is in our system of national account, which is in our calculation of gross domestic product, the government consumption is only about 9% of the total GDP. Where does the other 90% come? It comes from the economy, from the people who are making household consumption, from the people who are making the investment from our export. Of course, we also need import. It's the economy that, uh, that we need to pay attention to, in that in that sense, we have to use the 9%. So that's the very important part of the of the economy, so that we can create the other 90, 91%. If you look at the spending, the total spending, the total spending in our budget is around, let me calculate it roughly, uh, 30, 14% of the total GDP. Very small. Where does the other 85% come from? The economy. Uh, so we have to we have to think about what does the economy needs and then get the economy to roll and then get the maximum, uh, growth as possible. You talk about how the 3% is a guardrail and that you're committed to 3%, yet more and more of your projects are being funded off budget, you know, by the likes of Anantara, a state owned enterprises. How do you view the rest to your fiscal standing? Danantara is a sovereign entity. It is sovereign. Now, the Anantara has been tasked by our president, and then president. Prabowo is very keen to see that Danantara handles all of our state owned enterprise. They are so much, so much efficiency that we can get from Danantara. And we believe that with all of those efforts that Danantara has been doing almost two years, that they come into effect, and that in the last year or so, it's, uh, they start to clean up the state owned enterprises, they clean up the book. They making sure that that they can operate in a more efficient way. They have rooms. They have rooms for improvement. They have rooms for investment. This is something that they have to continue to work. Um, right now we are in the very close communication with Danantara, me, myself as the Minister of Finance, with the CEO of Danantara, the COO of Danantara. We start talking from day one to understand each other's position, understand each other situation, and then we work together for the better betterment of this country. Let me put it another thing. Uh, another perspective here. Imagine that, uh, the state of Indonesia has. And the head of state, which is President Prabowo, has two arms. One arm is the state budget. The other arm is the Danantara. The Danantara is the consolidation of the state assets which must work for this country for the improvement of this country. So big vision. Big perspective. Big ideas can be channeled through the work of, uh, the state budget can also be channeled through the work of the Danantara And of course, each one of us must understand the corridor on how we can, uh, talk, uh, discuss. But the thing is, debt is still debt. Spending is still spending, no matter where it sits. Uh, could the spending, could the fiscal position impact eventually your credit rating, Danantara is sovereign. But the way that Danantara handles internally is of course, they have to be credible, just as credible as the state budget. They have to come up with good communication, just as good as the state budget. And then when we talk to each other, we understand each other's position. But the fundamental thing is that Danantara is suffering. Is there clarity that perhaps more projects will be funded off budget now? If you want to maintain 3%? I'm maintaining the 3% through the budget. Danantara is handling, uh, so much efficiency to provide themselves with the room for additional investment. And we work together very closely. Lots of questions swirling around about whether or not Danantara will be contributing to the state coffers through its dividends. A yes or no answer. I mean is Danantara, will Danantara be contributing to the state coffers? I think, uh, the broader the broader answer would be Danantara is doing good for the country. They maintain their dividends. They maintain the dividends from the state owned enterprise. I should say the, uh, the state owned enterprise dividend is channeled to the Danantara and they use it for the further projects for further intervention, for further investment. We expect, uh, that they will leverage not using it directly on one on one basis, but should be leverage. And they can do it. They should be doing it in a more efficient way because it's a consolidation like a sovereign wealth fund. Uh, so they can serve as the catalyst, inviting private sector, crowding it, uh, crowding in, uh, investment. They talk to they do to the investment community. Uh, we hope that they, uh, because they are also, uh, sovereign wealth fund and investment. They talk the same language, uh, at the same time, the state budget, we can concentrate more on the, uh, public services, public or basic infrastructure. We're still going to invest on the infrastructure. And we also, uh, concentrate on the, uh, social protection of the people. So the answer is a yes. Ddirectly or indirectly, Danantara is contributing to the economy. That's what is more important. Can we take a look at the amount that Danantara is contributing, because your predecessor Purbaya talked about seven, about $7 billion? Uh, I think uh, I haven't seen that because I'm working with the, uh, state budget 2026, which is like that. And, um, we have just, uh, get the new approval of the 2027 budget. Yes. Which is just newly, recently approved. I am working with that. I am preparing the I am finishing up the 2026 and preparing the 2027, so it's not reflected in 26 and 27, but it might get reflected further down the road. It's it's not there in the 2026 budget and 2027 budget that is newly approved. Still possible for 28? Well, possibilities is something different. Hypothetical. We know that Danantara is taking a 40% stake in the Jakarta Stock Exchange with the demutualization of the bourse. We know that the financial, the finance industry or the finance sector, your ministry is also allowed to do so. Are you considering doing the same? Uh, we are looking at this. I think it's being discussed very intensively, not only with the Ministry of Finance, but also with, uh, our central bank and also with our financial supervision agency, our OJK, and but for the Ministry of Finance, we decided not to take part. Why not? I think we stick with as a regulator. The other thing that, um, the Ministry has decided to do is to adopt the debt of Whoosh, which is the speed rail. Talk to us about how you intend to fund it, because you've already made it clear that it will not be funded with the budget. Well, this is a good question, because it really gives me a chance to illustrate the two arms. President has a big vision. Continue with the with the Woosh. And, uh, we have to work together. I mean, budget, has to work together with the Danantara. Um, uh, in order to make sure that, uh, Indonesia, uh, can continue to provide the high speed transportation between Jakarta and Bandung. Woosh must continue to operate. At the same time. I'm talking with Danantara. What kind of arrangement that we can do if it is being transferred to, uh, to the state budget, uh, to the Ministry of Finance. And then at the same time, also talking with Danantara, we can what kind of cooperation that we can do? Uh, it is not zero-one. If it is already transferred to the Ministry of Finance, then Danantara can have no part there. It's never like that because it's the two arms serving the Republic of Indonesia. Yes. Uh, in terms of the, uh, is the Ministry of Finance going to take over? Yes. Uh, I'm designing the structure. Uh, the structure is, of course, is the budget together with the fiscal, uh, tools, uh, that we have. But I'm, I'm in close contact with Danantara And then because we can talk, we can communicate, we can understand each other. I think the communication will be, uh, it's it's much it's much flowing now. Uh, so there is no three. It's never it's never a strict no budget whatsoever. I mean, like, at the end of the day, it's about the intention, the objective, not about the tools. But is the ministry taking on too much? Because when you take a look at your fiscal space, there's hardly anything left is about 2.68%. That's little room. But we have the fiscal tools. We have fiscal tool,s we have Danantara is a sovereign asset. Uh, and I believe that, uh, close communication with Danantara will open up new options, new ideas, new ways of thinking. But it must be within the the right rulebook of the, uh, financial sector. Are you comfortable with your fiscal space? If oil prices were to stay elevated above 00 per barrel. Are you okay with that? I wish the oil prices is lower than this time around. But we do have the budget. Um, there is an intention to protect the people. There is an intention to grow the economy. And in order in order to do that. President Prabowo has already decided that we will maintain certain types of energy still to be provided, uh, to the people with the subsidized price. And of course, somebody has to pay the price. Now the who is going to pay the price? The tax payers, tax payers through the budget. Now it's also the taxpayers who are using the the energy. So in that sense protecting the people. But at the same time growing the economy. That's the intention of the. That's the intention of the subsidy. We face the situation where the market price is is increasing. The market oil price prices there is increasing. We have to absorb. But I'm telling you, we are absorbing the subsidy through our Danantara partners, our PLM, our Pertamina, who is who are also 100% owned by the state. So you see two arms. I'm coming back again to the two arms. But we have to observe. We have to go to, to to make sure that that it is within the financial sector, uh, corridor. But it is another good illustration of the how the APBN, the state budget and the Danantara are working together. At what oil price would you have to reconsider your spending plans. Well, we we. What are you willing to give up? We consider the numbers. Almost every day. We look at the ICP price, the Indonesian crude oil, uh, crude oil price every day. But of course, from time to time, we also assess our ability to absorb and our ability to work together with Danantara. That's why it's very important to have close coordination with Danantara. Because we are in this situation together. Uh, at the end of the day, as a tax payers, tax payers through the APBN at the end of the day, it's about growing the economy. Uh, but then at the same time, the APBN and the state budget and Danantara will carry this will carry this burden together for the sake of the taxpayers, for the sake of the people. Minister, you talked earlier about how the country has fiscal credibility, But it's not showing in the rupiah, which is hovering at about 18,000 to the dollar. And it is close to a record low. Why do you think that is? So rupiah is handled by our colleagues at the central bank. And of course rupiah is a reflection of the economic situation. Uh, from time to time. The economic situation is, uh, is changing. I believe our colleagues at the Bank Indonesia is making sure that rupiah continue to be at the level of that is reflecting our economic fundamentals. So the rupiah at this level reflects you have to ask the bank Indonesia, what's your take? I think that the Indonesian fundamentals, because they are close to record lows, not like that the economy is in economy is in order. And of course that that the global economy is not in order. The global economy is not in order. The US is increasing the fan and then the geopolitics is there is still very high tension. Uh, Indonesia must, uh, react with something. Of course, the global community is having. I mentioning the market has or has their own logic. We act accordingly. We make sure that the local economy, the domestic economy is resilient. Resilient enough. And then, uh, the adjustment will take place every day, basically. Are you comfortable with the rupiah at 18,000? I'm comfortable with the with the way that Bank Indonesia is doing what they can and maintaining their mandates. What is the true value? The fair value of the rupiah. I think you have to ask the bank Indonesia. What do you think? Bank Indonesia needs to be more aggressive in supporting the currency, bearing in mind. The fed is on the cusp of raising rates, which would push the rupiah even lower. Uh, look, the Intention it is about the mandate. Bank Indonesia is maintaining stability, economic stability and supporting growth. The mandate of the budget is making sure that the government spending the taxpayers money is used for the best use of the, uh, intervention in the economy, the social protection, the, uh, the public infrastructure, the public services. And now I have a new partner, the Danantara, who is making sure that that investment is coming up. So different mandates, different institution, different mandates, but then the same objective for the country. That's right. So you say that your ministry and Bank Indonesia are aligned in your conversations. What are you advising Bank Indonesia to do? Where would you like rates to be? How well supported would you like the currency to be? We never talk with the Bank Indonesia about specific numbers. We talk about the intention and the mandates. And then, uh, but then whenever the policy is coming, it's... As long as it is really within their mandates, we are comfortable with every move that Bank Indonesia makes. Would you like to see rate hikes by Bank Indonesia? You'd have to ask Bank Indonesia about this. It would make sense though, right. Because, you know, as the government, we never provide the forward guidance. That's not our role because we know Bank Indonesia has the law mandated the, uh, has the mandate stabilization and supporting growth. It is a high yield environment around the world are seeing a global selloff in the bond market, price action we've never seen in a very, very long time. What's your take on what's happening in the bond market. How concerned are you and are you likely to take measures to contain the fallout. Uh, we have already seen this increase. And then, of course, at some point, we have to be very watchful with our own yield. Uh, but then again, it is about making sure that the yield is a tool for the financing of the budget is a tool that eventually will be used by the central bank for the stability. At the same time, uh, supporting the growth. But of course, from the Ministry of Finance, uh, point of view, I would like to see my yield going down. But of course, at the same time, we understand this. What this country needs is a stability and supporting supporting role. So it's always like, uh, try, always try to find the right balance. Every day. Every day we, uh, at the technical level, we, uh, we have the auction of our bonds, our bonds option, uh, every week and of course, every week we are facing the market for the primary market. And then we get the sense what the market is trying to tell us, uh, what the market is trying to convey, uh, message that they try to convey to us at the same time as well. Every day we try to convey the message to the market. We are credible. We are going to do what we talk, and then we are going to maintain consistency in the policy. Of course within the corridor of big vision of the president, but at the same time making sure the big vision can be implemented. So as it stands now, no measures to support the bond market in Indonesia. Uh, the supporting the a few because back in May. Yeah. Um the government did buy back, uh, government debt. Uh, I think it was up to 13 million every single day, thereabouts. Mhm. Do you intend to do the same? Uh, no. Why not? Uh, it's, uh, a buyback is something. We have the bond stabilization framework. It's a framework that we activate if the, uh, the country is in the, uh, under, uh, a lot of pressures. Right now, I don't think our country is under a lot of pressures. Uh, in fact the central bank has already had, our central bank has a 100 basis point hikes since May. Uh, our yield right now, sticks at, uh, 7.15, 7.2, uh, coming up from around 6.8, uh, maybe early this year. Uh, but more importantly, if I look at the data about the spread, our spread, our ten year bond spread with the US. It's still at a very healthy level, 220, 225. And then I may remind you that ten years ago, whenever we hit the 400 basis point spread, everyone was jumpy. Right now, 225 basis point spread. We are calm. Is it shaping your bond issuances in any way. Because if you take a look at Thailand, Thailand is issuing shorter debt maturities until the bond market stabilizes. Might you do the same? Well, my debt management office is doing their portfolio strategy. But the standing order from me is to make sure that Indonesia, we would like to, from the Ministry of Finance, we would like to put the yield as low as possible, while at the same time making sure that we understand what the market is telling us. uh, the message that they would like to convey. What fundraising plans might you have? How much might you need? How much might you tap the market for? Or the DC raise? As much as the the new is once it's as much as the deficit level. And of course, our portfolio strategy is trying to put that in, uh, between the local currency and then the global currency. The usual thing. Uh, I believe that we still have room for the global currency issuance, uh, in the remaining three months of the, of this year. And then we are finally we with the new budget that is approved by our parliament, uh, yesterday, uh, the day before, uh, we are designing the new, uh, portfolio minutes, uh, portfolio strategy for next year with the deficit of 2.4% of the GDP. Minister, you're a newly appointed finance minister. Two of your predecessors had gone within a period of one year, and we saw the resignation of Bank Indonesia governor in the same year as well. What do you see as the biggest challenge you face as you take on this role? Uh, managing the APBN managing the state budget is a very, very important task. And we have to make sure that people understand that, uh, and the credibility, the commitment to policy, uh, understanding about the rulebook and then maintaining a clear message to the to the economy, to the business sector is very they are all very important. That's what I intend to do. Or the other thing is the, uh, the stability of the financial sector Ministry. The Minister of Finance is the coordinator of our financial sector, uh, Stability Forum. Uh, it's very important for me to coordinate closely with the central bank, uh, with the OJK and also with our FDIC, with our Indonesian DIC We're going to do that. We, uh, we have to show to the economy that we are guarding this economy. We understand each of our mandates. We are willing to coordinate. We are willing to communicate. We have to be consistent with our mandate. But at the same time, get the information flowing. That's why the first week of my appointment. I went to Bank Indonesia. It's very important to show to the economy that we are coordinating. We are coordinating together. I came with my vice minister, and the governor of the central bank and with, uh, with the board member. We discuss. We talk. We chat. We have laughed together. And we appear before Before the media. Uh, but of course, coordination is not only at that level. My staff is doing the coordination at the very technical thing about, uh, how, uh, our portfolio strategy. What is the amount of, uh, issuance that we expect next week, the week after, and so on. At that level is taking place at the very principal level is very important issue. You talk about great alignment between the ministry as well as Bank Indonesia. Should investors be concerned about the independence of Bank Indonesia of the central bank? No, because what Bank Indonesia is doing is also for the better, for the goodness, for the betterment of this country. It's the same with us. Can the country achieve 8% growth as stipulated by the president? We have to put our dreams as high as possible, and then work as hard as possible and then get the result. Is it realistic? What will it take? Oh, what will it take Is a resilient domestic economy, real sector that is moving, policy that is consistent, and global economy that is supporting us. Will you get there until the global economy is my big question now. What's worrying you about the global economy? Well, the global the geopolitical tension, the way how each country is looking at each other, the tension in the geopolitics that has an impact on the commodities, not only the commodities that we import like oil and gas, but also the commodities that we export to the world. Our, uh, nickel, our bauxite, our coal. of course they are. They all have direct impact to the state budget. Uh, and we we really hope that, uh, the, the global attention can, can continue to, uh, be reduce, uh, calmer and that we will be able to, I mean not only Indonesia but every single country can develop the economy for the betterment of each other's, everyone's people. Minister as we talk about commodities. President Prabowo has expressed concern about the leakages. He talked about possibly over the last 20 odd years, we've seen a loss of, I think, $800 billion. Can you. Can you clarify if that number is accurate? Let me put it. Let me put it this way. Indonesia has been an exporting country. 1970s oil. We export a lot to the world. And we we are becoming like there is an oil boom. And that take place until probably in the 90s. And then after that we export log. Woods. After that we export coal. And then after that we export. Right now we export the minerals. It is also in our in our radar. But the financial sector of this country is very shallow. Where does the money go? That is there at the very heart of President Prabowo, something is, if all of those exports because he showed the numbers right from 20 years, 20 years back and so on. If those money, if those export proceeds are here in Indonesia, it is much more. It's much more [inaudible] than this time around. So of course, then it's, uh, we have to work with this. Uh, and then, of course, the worth of under pricing or under invoicing, uh, start to appear. And I'm so happy that that kind of terms are actually coming from our president. Why? Let me put it. Uh, let me tell you in the past, it is our concern, but it is only the Ministry of Finance concerned. It is only more specifically, specifically, the Directorate of General of Tax. Tax will say that, uh, this company is not reporting the right price. It's, uh, making the certain transaction structure so that we don't get the, the right price when getting out of Indonesia. Right now, it's is the attention of our president. 800 billion is a big amount. And how much of that can be recovered? Uh, it's a constant effort. It's a constant effort. The president has already designated Danantara to establish a new. Realistically, though, how much do you think can be recovered? It's it's not about the target. It's about the right policy that we have to put. we would like to recover all. But we also understand that, uh, the financial sector has been such a very complex weapon in the world. But we know our export proceeds are somewhere. But of course we will. We will do. What is this country is, uh, uh, has been doing since since so many, many years. We will continue to export. We will continue to make the best use of our natural resources. But we will do it in the right, in a better way to make sure that it will stay in this in this country. Minister, before I let you go, I'm sure you've made targets for yourself. What can be expected by the international community in at the end of your first year? At the end of your second year? Uh, I, I intend, um, I intend to manage the state budget and, uh, as credible as possible. My tagline is always, uh, speak in Bahasa Indonesia. Let me translate that, because it's the international audience, the budget that grow the economy, the budget that protects the people, and the budget that is credible for our sustainability. In order to do that, because there is an intention, in order to do that, I will work very closely with every institution in Indonesia. The two arms. Obviously, by nature we are working together with our financial sector uh, stability Forum. That is also very important. And then we have we we are managing Indonesia. Uh, of course, not only from the central government, but also talking to the a lot of local governments. And investors can expect policy continuity from your predecessor? From time to time, we always reconsider our position and that, uh, that reconsideration may end up being the new policy. But Indonesia has already shown in the 20 years how fiscal credibility and how fiscal sustainability has been maintained. Our Indonesian business sector, global communities can expect that we will continue with that kind of credibility.