The newly appointed Indonesian Finance Minister, Purbaya Yudhi Sadewa’s marks a turning point for the country’s economic policy. The change came after Sri Mulyani Indrawati stepped down, triggering volatility across financial markets. The rupiah weakened, bond yields climbed, and the Jakarta Composite Index (JCI) declined as investors reacted to the sudden shift in leadership. For many, this signaled uncertainty over the fiscal credibility that Sri Mulyani had long embodied.
Investor Market Reaction to Policy Transition
The immediate impact of the leadership change was clear in market movements. Investors had relied on Sri Mulyani’s track record as a safeguard for Indonesia’s fiscal stability. Helmy Kristanto, Chief Economist, Macro Strategist, and Head of Fixed Income Research at BRI Danareksa Sekuritas (BRIDS), explained, “Sri Mulyani was viewed as the key guardian of Indonesia’s fiscal credibility.” He noted her success in keeping the budget deficit below 3% of GDP.
Following her exit, market turbulence appeared inevitable. The JCI slipped, bond yields rose, and investors reassessed their positions. Helmy predicted that short-term volatility would persist. However, he also pointed to opportunities: “With interest rate cuts from both Bank Indonesia and the US Federal Reserve, volatility may create chances. The approach can balance fiscal discipline with support for growth. However, initial policies will greatly determine the speed of market acceptance.”
Leadership Profile of the New Indonesia Finance Minister
Purbaya brings significant experience to the role. His background spans financial markets, government positions, and his tenure at the Deposit Insurance Corporation (LPS). According to Helmy, this combination provides him with “a wider perspective” than many of his predecessors. His work at LPS in particular gave him an in-depth understanding of how fiscal spending interacts with liquidity in the financial system.
Another important trait is his pro-growth outlook. Helmy highlighted that Purbaya is known for supporting measures that encourage economic expansion. In the current climate of slowing growth, this stance could reassure businesses and investors seeking momentum. “We see Purbaya’s appointment as signaling potential policy continuity, but with a stronger pro-growth focus,” Helmy said.
Balancing Fiscal Discipline and Government Spending Plans
While markets search for direction, economists emphasize the importance of maintaining fiscal discipline. Bhima Yudhistira, Executive Director of the Center of Economic and Law Studies (Celios), cautioned against unchecked spending. He advised reviewing President Prabowo’s high-profile programs, such as Free Nutritious Meals, Food Estate, and People’s Schools. “Large budgets for these programs should be reduced,” he argued, noting that direct support programs like Cash Transfers (BLT) and Wage Subsidy Assistance (BSU) provide more immediate benefits.
Bhima warned of the risks of following every initiative: “Mr. Purbaya should maintain fiscal discipline, because if he fulfills all of Prabowo’s requests, there’s a risk the fiscal position will bleed and debt will keep rising.” His concern underscores the balancing act between political priorities and financial stability.
Another issue is the burden-sharing scheme between the government and Bank Indonesia (BI). Bhima reminded that excessive reliance on this mechanism could threaten BI’s independence and, in turn, financial stability. The challenge for Purbaya will be managing government ambitions without undermining fiscal sustainability.
New Tax Strategies to Support Economic Policy Changes
Beyond spending control, economists stress the need to expand revenue streams. Bhima suggested that instead of burdening the public, the government should target extractive industries. He said, “This could form a revenue base without harming public purchasing power.” Closing tax loopholes in sectors such as mining, nickel, coal, and palm oil could generate significant income. A windfall profit tax would also ensure fairer contributions from resource-based industries.
To further strengthen revenue while protecting households, Bhima proposed lowering the VAT rate to 8% and raising the non-taxable income threshold (PTKP) to IDR 7 million per month. He also advocated for a 2% wealth tax on the super-rich, describing it as “an urgent step to reduce inequality and increase state revenue.” These measures could align fiscal sustainability with social equity.
Outlook for Indonesia’s Economic Policy Direction
The future of Indonesia’s economic policy hinges on how effectively the new Indonesian Finance Minister balances growth and fiscal discipline. Markets remain unsettled, but global monetary easing offers room for opportunity. Analysts and economists agree that Purbaya’s choices will determine investor confidence in the coming months. His pro-growth stance could support recovery, but fiscal restraint will be critical to long-term stability. Ultimately, his leadership will shape Indonesia’s credibility in both domestic and global financial arenas.
Source: investor.id, theiconomics.com
Image: ANTARA FOTO/Dhemas Reviyanto
