REPUBLIKA.CO.ID, JAKARTA -- Government debt is a very sexy issue that people talk about, and it is often brought into the political sphere. Rumours that President-elect Prabowo Subianto will raise the debt ratio from 39 per cent to 50 per cent of gross domestic product have resurfaced. This was stated by Prabowo's younger brother Hashim Djojohadikusumo.
According to Hashim the plan has even been reported to the World Bank. “I have spoken to the World Bank and they think 50 percent is a wise course of action,” Hashim told the Financial Times in Jakarta on Friday (12/7/2024).
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To the Financial Times, Hashim acknowledged rising debt ratios to finance the free lunches and milk that were the Prabowo-Gibran couple's flagship programme. However, Hashim continued, the increase in the debt ratio would be done in conjunction with raising state revenues.
“The idea is to increase revenues and increase debt levels. For his Income could start from taxes, export taxes, royalties from mining and import taxes,” Hashim said.
When confirmed separately, the World Bank did not respond to requests for comment on the matter. Under the regulations, in accordance with the Law (Law) Number 1 of 2003 on State Finance, the government debt ratio is set at a maximum of 60 percent of GDP.
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The Prabowo government's borrowing plan marks a major shift from the fiscally conservative stance of President Joko Widodo (Jokowi), which turned Indonesia into a commodity power. Hashim is one of Prabowo's closest advisers and will play an important role in the Oct.
Hashim is said to have presented the idea in a meeting with companies and consultants in June 2024. According to sources, Hashim said Prabowo's government would achieve its target of 39 percent to 50 percent of debt of GDP gradually rising by as much as two percent over five years.
Hashim told the Financial Times. According to him, the rise in debt ratios is in line with other countries in Southeast Asia. “We will keep making investment grade at that level,” he said.
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On the plan, economists have warned that a 50 percent debt ratio would push the budget deficit beyond the legal threshold of three percent. The policy could also hurt the rupiah, which has fallen more than five percent against the U.S. dollar this year.
Hashim added that there would be other initiatives supporting Prabowo's 8 percent annual growth target, including building more power plants, refineries and households, and expanding food production. Prabowo plans to set up a state revenue agency to boost tax collection.
However, economists have warned that the policy will not be easy. Hashim is the owner of Arshari Group which runs mining, agriculture and commodities activities. He was briefly named in a tax evasion case in Geneva, Switzerland, related to a family-owned villa auctioned by the local authority in April 2024.
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