Indonesia’s new finance minister wants to transfer half of the 400 trillion rupiah, which is government money in cash reserves maintained with the central bank, to the state-owned lenders. The cash injection may occur as soon as possible and be allocated to banks immediately.
Indonesia’s newly appointed finance minister announced his plans to reassess his predecessor’s proposed budget for 2026, along with the closely watched fiscal deficit target.
This is the second policy declaration from Finance Minister Purbaya Yudhi Sadewa, after he surprised the market with the proposal to inject $12 billion into the economy to jumpstart the lending.
He stated that the finance ministry aims to revise next year’s budget to increase funding for regional governments. Local leaders were upset over the planned reduction in transfers within the 2026 budget.
The offshore rupiah dipped slightly after the announcement of his plans, with the one-month non-deliverable forward decreasing by 0.2% to 16,491 per dollar.
Purbaya has committed to delivering quick solutions to boost growth in Southeast Asia’s largest economy.
Examining the previous 2026 budget proposal would raise concerns among investors that appointing Purbaya might lead to increased public spending in Indonesia.
Sri Mulyani Indrawati, the Former Minister of Finance of Indonesia, initially set the budget deficit target at 2.48% of the country’s gross domestic product for the next year, well below the legally established cap of 3% that is closely watched by markets.
The new finance minister wants to transfer half of the 400 trillion rupiah, which is government money in cash reserves maintained with the central bank, to the state-owned lenders. The cash injection may occur as soon as possible and be allocated to banks immediately.
Purbaya described the finance sector as experiencing a “drought” that was choking Indonesia’s economy. The cash reserves, referred to as SAL, have been building up in the central bank due to underspending and should be released to stimulate economic activity. On the other hand, Indrawati wanted to keep the reserves available for future government financing when interest rates were too high.
Radhika Rao, a senior economist at DBS Bank, stated that from a liquidity standpoint, the move to use idle funds is favorable for the money velocity.
This liquidity injection supports many other measures aimed at jumpstarting economic activity, stated Rao, highlighting the central bank’s interest rate cuts and various government stimulus initiatives.
Earlier this year, the finance minister allocated 16 trillion rupiah of the SAL to state banks to encourage them to offer lower-interest-rate loans to village cooperatives, as well as funds for low-cost housing.
During Indrawati’s last few days as a finance chief, the government updated a burden-sharing deal with the central bank to help cover the debt costs of both programs.
Some analysts argue that withdrawing significant funds from SAL will diminish fiscal flexibility, given SAL’s role in covering fiscal deficit gaps. Nonetheless, even after the transfer, a significant 230 trillion rupiah remains in the SAL, which is 1% of the GDP.
Indonesia’s finance minister advised against banks using extra funds to buy government bonds, instead focusing on increasing lending, which is the slowest in three years. Purbaya stated that the aim for banks is to maintain a sufficient amount of free cash on hand and direct it only towards loans.
He noted that the new fund transfer will not trigger inflation. Inflation was recorded at 2.31%, staying within the central bank’s target range of 1.5%-3.5%. He is committed to achieving economic growth of 5% to over 6%, with the ultimate goal of reaching 8%.
His plan aims to increase liquidity and lower borrowing costs, but it remains uncertain whether it will stimulate lending when Indonesians have a weak credit appetite.
Companies have been hesitant to invest due to the unpredictable global and domestic environment. Households are also cautious about spending due to concerns about job security, according to Lee from Maybank.
