Unlocking excess cash balance. On 10 September, during his debut session with Commission XI of parliament, the new Finance Minister Purbaya Yudhi Sadewa said the MOF has allocated IDR200tn of the total IDR425tn excess cash balance (SAL) currently in BI s special account for placement in banks. This move aims to inject fresh liquidity, accelerate fiscal transmission, and support domestic demand. Purbaya said he had obtained President Prabowo s approval, and Vice Finance Minister Thomas Djiwandono stated that the process of SAL transfer has started. Purbaya believes to support the currency, economic growth must accelerate, and this will depend on sufficient liquidity. He warned BI not to absorb the injected SAL into open market operations.
Lesson learned. Finance Minister Purbaya recalled that during the Covid-19 pandemic in May 2021, about IDR300tn of SAL was shifted from BI to banks. This immediately improved liquidity, reversing base money (M0) growth from 0.4% y-o-y in April 2021 to 12.7% in May 2021. Purbaya argued that interest rates alone don t fully reveal the stance of monetary policy M0 expansion is equally crucial. He cited that under President SBY, M0 grew 17% annually, supporting 6% GDP growth, while under President Jokowi it slowed to 7% with GDP growth at 5%. The 2008 09 and COVID-19 crises further demonstrated how liquidity injections and fiscal expansion can stabilize growth.
Difference with SAL as financing. The initiative differs from using SAL as financing, a strategy that the MOF regularly employs each year to reduce bond issuance. This use of SAL is usually earmarked for specific spending such as debt repayment or funding government projects, and it appears in the budget as below-the-line items. Importantly, the target is usually set in the budget, meaning any change requires parliamentary approval. For example, this year the government plans to use IDR86.6tn of SAL. The new initiative of shifting SAL placement from BI to banks is simply a switch between two instruments, which will not affect the budget financing. The SAL placed in banks will not be earmarked for specific programs, and its status remains idle money.
Regulatory framework. Government Regulation No. 147/2021, which implements Law No. 1/2004, allows SAL placement outside BI s special account in short-term instruments including deposits, government bonds, and reverse repos. This mechanism enables the MOF to redirect idle funds from BI to the banking sector, particularly SOEs, avoiding legislative holdups and delivering liquidity more swiftly. Through Regulation No. 88/2024, the MOF expanded excess cash management by permitting short-term lending of SAL to SOEs and other entities handling government projects (see Macro Trip: Key Takeaways from the Meeting with Directorate General of Treasury). The MOF currently receives 80% p.a. of the BI Rate from placement in BI i.e., about 4% at present.
Liquidity implication. The one-off addition of IDR200tn into the money base in September will lead to an expansion of 17.1% y-o-y from 0.3% in August. Assuming a stable money multiplier, this implies M2 growth of 9.1% y-o-y from 6.6%. The MOF has started to use SAL more meaningfully as a source of financing since June, as spending accelerated, resulting in improved liquidity. However, for monetary transmission to work and to boost loan and economic growth, money demand must also improve. Higher money supply without sufficient demand could weaken the currency, with the liquidity eventually ending up in financial instruments. As such, we believe fiscal execution is crucial to stimulating domestic demand. Indeed, Minister Purbaya said to address the weak fiscal spending, he intends to hold monthly press briefings with program heads, deploy finance staff to lagging ministries, and monitor disbursement performance on a rolling.
