Indonesia’s president-elect plans sharp rise in debt, says top adviser 


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Indonesia’s incoming president Prabowo Subianto will allow the national debt to increase to 50 per cent of GDP to fund his ambitious spending programmes, provided the government can boost tax revenue, one of his closest advisers has said.

Hashim Djojohadikusumo, Prabowo’s brother and a prominent tycoon, told the Financial Times that Indonesia could still retain its investment-grade rating if the debt-to-GDP ratio rose to 50 per cent, from 39 per cent at present. 

“The idea is to raise the revenue and raise the debt level,” Hashim said in London. “I’ve talked to the World Bank and they think 50 per cent is prudent.” Under Indonesian law, Indonesia’s debt-to-GDP ratio cannot exceed 60 per cent.

“We don’t want to raise the debt level without raising revenue,” Hashim added, pointing to “taxes, excise taxes, royalties from mining and import duties”. 

The Prabowo administration’s borrowing plans mark a big shift from the conservative fiscal stance of outgoing president Joko Widodo, who transformed Indonesia into a commodities powerhouse.

Hashim is one of Prabowo’s closest advisers and is set to play an influential role when the new government takes office in October. His comments were the first official confirmation of plans for higher borrowing and came days after other advisers denied the 50 per cent target, which was first reported by Bloomberg. 

Hashim Djojohadikusumo giving a speech in February to support the election campaign of his brother Prabowo Subianto
Hashim Djojohadikusumo giving a speech in February in support of his brother’s election campaign. The tycoon’s Arsari Group has interests in mining, agriculture and commodities © Adek Berry/AFP/Getty Images

Economists have warned that a 50 per cent debt ratio would push the budget deficit beyond a legal ceiling of 3 per cent. It could also weigh on the rupiah, which has already fallen more than 5 per cent against the US dollar this year.

The World Bank did not respond to a request for comment.

Prabowo’s big-ticket spending item is a free lunch programme for school children and pregnant mothers, which his aides have estimated will cost $28bn.

Hashim said the meals programme would help act as a “stimulus to the economy” and add at least 1.2 percentage points to GDP. He stressed, however, that the debt ratio would only be allowed to rise if government revenue also increased. Indonesia has one of the lowest revenue-to-GDP rates in south-east Asia, at about 14 per cent, according to IMF data.

He added that several other initiatives would support Prabowo’s target of 8 per cent annual growth, including building more power plants, refineries and homes, and expanding food production. 

Line chart of revenue to GDP (%) showing Indonesia’s government revenue is low compared with regional peers

Prabowo plans to establish a state revenue agency to boost tax collection, though economists have warned that doing so will not be easy. He is also considering cutting subsidies and selling state assets to shore up revenue. 

In a meeting with companies and consultants in Jakarta in June, Hashim said Prabowo’s government would achieve the 50 per cent debt-to-GDP target gradually, adding 2 percentage points annually over the five-year term, according to a person with knowledge of the matter.  

Hashim told the FT that raising the debt level would be in line with south-east Asian peers. “We’ll still make investment grade at that level,” Hashim said. Rating agencies Moody’s, S&P and Fitch have all assigned Indonesian sovereign debt a rating of one notch above the lowest investment grade. Fitch has said a material increase in government debt would weaken Indonesia’s sovereign credit profile. 

Line chart of general government gross debt, % of GDP, showing Indonesia’s debt-to-GDP ratio is among the lowest in the region

Hashim, whose Arsari Group has interests in mining, agriculture and commodities, is also battling a tax evasion case in Geneva, where villas belonging to his family were auctioned in April as part of authorities’ efforts to recover tax dues. 

Hashim and his wife Anie have argued that they were insolvent after spending hundreds of millions of dollars bailing out Prabowo’s business and funding the latter’s previous election campaigns. Swiss courts dismissed the claims of insolvency.  

Hashim told the FT that he would continue fighting the case. “I’m not [going to settle] . . . I’ve spent 20 years fighting the Swiss, who are being very, very unreasonable, very unreasonable.”



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