Government Update
Communication and Proper Policy Execution are Key
“We attend a meeting with Special Staff of President Prabowo, Dirgayuza Setiawan, Fiscal Policy Agency Chief, and Presidential Communication Office, regarding the current financial market situation, together with several market participants. Recent announcement of Danantara should also provide positive nuance as the line-up are professionals. Here is the Salient Points”
Government are aware that the better policy communication are needed. Regarding recent sharp correction in stock market, government are open for input about government program, both on communication and execution. Government also mention that, in Prabowo presidency, most of the policy will come from the palace directly. Hence, Presidential Palace to be more active communicating the policy to financial market going ahead. In this situation, Good policy only is not enough to achieve government goal both in big idea and specific project. Some important detail that are being discussed in this session are current development of free meal program, state of government efficiency program and clarification on some policy such as Red and White Cooperatives which will be linked with the free meal program. Hence, the credit risk would not be as high as expected as this initiatives are linked to government program. Meanwhile, discussants are suggesting government to provide more middle-class policy support, as most of government policy are targeting lower-income segment. Policy on job creation, that open higher income job is needed at current economic situation to move up the needle. Policy such as local-content requirement (TKDN) should be evaluated as we need better policy to increase exports.
Clear Policy Time-Line and Space for discussion are needed. A very important thing in our discussion are about the time-line of policy announcement which are at very short-time (less than two weeks for several policy). It already create a hard to digest policy situation in Indonesia and triggering risk-off situation. Government already accept this suggestion and to consider much wider time space between policy announcement and communication date. Steady and Intense communication with financial market is needed going ahead.
Stock Market are an Integral Part of National Economy. Regarding the capital market, government mention that, stock market is an integral part of the economy and an important wealth creator. To achieve 8% GDP growth target, stock market is needed to provide insight, and execute profitable and high economic impact investment. Stock market is also a source of national confidence. Lesson from many countries, stock market is an important tools to prop-up national confidence.
Domestic Institutional Support in Stock Market is needed. Regarding the slide of stock market, interesting discussion are emerged as other stock market are experiencing even bigger outflow than Indonesia, but the performance of the stock market is not that bad. One of the reason are about the presence of domestic investors, especially national pension fund and other non-bank financial institution. Currently, the proportion of Indonesian pension fund in Indonesia stock market is very low<10%, far lower the suggested 20% level. To support market, domestic pension fund, such as BPJS-TK should increase their investment in stock.
Fiscal Discipline and 2.53% of GDP to be maintained. On fiscal matter, MoF stateted that the 2.53% of GDP fiscal deficit in 2025 to be maintained, while revenue and expenditure start to experience recovery in March 2025. The details of the fiscal posture in 2025 is to be communicated when government start to discuss 2026 prospective state budget (RAPBN).
Danantara announcement should provide positive guidance, with some important notes. On Danantara, recent announcement of lineup (figure 1), which filed by professional should be positive guidance for market. Homework on Danantara would be on the explaining about new corporate structure impact on credit perception of SOE under Danantara. In the other hand, the first guidance on investment would be an important thing to watch.
