Disclaimer: This article is an editorial that highlights the problems in Indonesia today

PIKIRAN RAKYAT — The elected president, Prabowo Subianto, has indicated that he may consider increasing the national debt to 50 percent of gross domestic product (GDP) to fund his ambitious programs. The government could also increase tax revenue.

In an interview with the Financial Times, one of his closest advisors and younger brother, Hashim Djojohadikusumo, revealed this information. He suggested that Indonesia may still be able to maintain its investment grade rating if the debt-to-GDP ratio were to rise from the current 39 percent to 50 percent.

The intention is to explore ways of increasing revenue and debt levels. "I've discussed the matter with the World Bank, and they believe that a 50 percent increase would be proportionate if I understand them correctly," he said.

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Following Indonesian legal requirements, the ratio of Indonesia's debt to its gross domestic product is not permitted to exceed 60 percent. Hashim Djojohadikusumo also ensured that any increase in the debt ratio would align with the increase in revenue.

"We intend to avoid increasing the debt level without increasing revenue," he said. The anticipated increase in revenue is expected to come from various sources, including taxes, excise, mining royalties, and import duties.

The borrowing plan put forth by the Prabowo Subianto administration represents a notable departure from the more conservative fiscal approach embraced by the outgoing president, Joko Widodo, which was instrumental in transforming Indonesia into a prominent commodity exporter.

Meanwhile, economists have suggested that a debt ratio of 50 percent could potentially result in a budget deficit that exceeds the legal limit of 3 percent.

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It may also impact the rupiah, which has fallen over 5% against the US dollar this year.

Meanwhile, the World Bank has not yet responded to requests for comment.

One of Prabowo Subianto's key spending areas is the Free Lunch Programme for children and pregnant women, which is estimated to cost US$28 billion (Rp451.5 trillion).

Hashim Djojohadikusumo suggested that the program could stimulate the economy, potentially adding at least 1.2 percentage points to GDP.

He highlighted the importance of ensuring that the debt ratio is managed carefully and is in line with the growth of government revenues. However, IMF data indicates that Indonesia has one of the lowest income-to-GDP ratios in Southeast Asia, at approximately 14%.

Hashim Djojohadikusumo also mentioned several other initiatives in the pipeline that will support Prabowo Subianto's target of 8 percent annual growth. These include plans to build more power plants, refineries, and houses and expand food production.

Prabowo Subianto also intends to establish a state revenue agency to improve tax collection. However, economists have cautioned that this may present particular challenges. He also considers reducing subsidies and selling state assets to generate additional revenue.

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In a June 2024 meeting with companies and consultants in Jakarta, Hashim Djojohadikusumo suggested that the Prabowo Subianto administration might gradually achieve the debt-to-GDP target of 50 percent, potentially adding two percentage points per year over five years.

He suggested that increasing the debt level would be in line with that of other countries in Southeast Asia. 

"We are optimistic that we will still achieve investment grade at that level," Hashim Djojohadikusumo said.

Rating agencies Moody's, S&P, and Fitch have all assigned Indonesia's sovereign debt rating one notch above the lowest investment grade. Fitch said a material increase in government debt would weaken Indonesia's sovereign credit profile.  

Hashim Djojohadikusumo, who also owns the Arsari Group, which deals in mining, agriculture, and commodities, is currently engaged in a legal matter regarding alleged tax evasion in Geneva.

As a result, the family's properties were auctioned off in April 2024 as part of the authorities' efforts to recover tax dues.

He and his wife, Anie, have expressed their belief that they are currently experiencing financial difficulties due to the significant expenditures they have made to support Prabowo Subianto's business interests and previous election campaign, which have amounted to hundreds of millions of US dollars (trillions of rupiah). However, the bankruptcy claim was ultimately rejected by a Swiss court.

Hashim Djojohadikusumo indicated that he intends to pursue the matter further.

"I will continue to speak out on this matter. I have invested a great deal of time and energy over the past two decades in pursuing this matter with the Swiss authorities, which has proven to be a challenging and lengthy process," he commented, as Pikiran-Rakyat.com from the Financial Times reported.

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Airlangga Hartarto, Coordinating Minister for Economic Affairs, has stated that the Prabowo-Gibran administration has no intention of increasing Indonesia's debt ratio to 50 percent of GDP. He suggested that the administration's debt ratio remains below 40 percent of GDP, with the 2025 state budget deficit limit also remaining below 3 percent.

He highlighted that the Prabowo-Gibran government's debt ratio remains below 40 percent of GDP, and the 2025 state budget deficit limit also remains below 3 percent.

"We can agree that that is not the issue at hand. We are still focusing on maintaining a debt ratio below 40 percent and keeping the current account deficit at 3 percent," said Airlangga Hartarto after the press conference of the One Map Policy Rakernas in Jakarta on Thursday, 11 July 2024.

Furthermore, he suggested that Prabowo Subianto's younger brother's statement was merely a discourse. He stated that, to his knowledge, the Prabowo-Gibran administration had made no adjustments to the debt ratio or state budget deficit.

"Yes, it is just a discussion point being considered," said Airlangga Hartarto.

Meanwhile, the Institute for Development of Economics and Finance (Indef) has suggested that the 2025 state budget deficit be set at a moderate level.

"If there is a desire to make changes at a later stage of the next government, perhaps it would be more prudent to leave it open for discussion today," said Indef's Director of Big Data Development, Eko Listiyanto.

He suggested that considering more sustainable budgetary policies to reduce debt risk might be beneficial.

He indicated his general agreement with the Draft State Budget 2025 strategy, which emphasizes fiscal discipline rather than widening the deficit to above 3 percent.

"If the political situation becomes more challenging, it could potentially lead to new issues, and the debt legacy from President Joko Widodo may become more complex if we don't address it effectively," said Eko Listiyanto.***(Politeknik Negeri Bandung/Ahyaithannisa Taufik)