The tax U-turn was then followed by a drive for savings that became almost comedic. Spending by ministries, agencies and local authorities was frozen; some offices switched off lights and suspended the use of elevators to save electricity.
The president attacked some civil servants as “little kings” intent on stymying his agenda. If he cared so much about fiscal probity, wouldn’t it have been better to let the broad VAT hike proceed?
The government looked like it didn’t know what it was doing. Instead of emphasising stability, a hallmark of Indonesian economic policy in the decades since the Asian financial crisis, chaos looked like it would become the defining feature.
A MOMENT OF CALM
That’s a dangerous development for a country with a current account deficit dependent on capital pouring in to maintain the rupiah’s value. That things seemed to have settled down is a blessing. Markets in Jakarta no longer gyrate on speculation about cabinet shake-ups. Meanwhile, Trump’s assault on governing norms makes Prabowo’s early reversals look minor.
Indonesia isn’t necessarily out of the woods. The president hasn’t walked away from the general idea that a muscular fiscal policy is desirable. Spending on his signature initiative, the provision of free school lunches across the vast archipelago, will probably show up in second-quarter growth figures.
And in the event that Trump is able to secure a string of trade deals and the dollar rallies, the rupiah could again buckle.
For now, though, let’s cautiously celebrate that chaos has taken a sabbatical. The relative stability hasn’t come through ideal circumstances, though that it has happened matters. We have had a glimpse of what can happen when Indonesia gets out of its own way.
Source: CNA
