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Prabowo's Bold Decision To Cut The State Budget By Rp306 Trillion: Implications For Indonesia's Economy
Thursday, 30 Jan 2025
The administration of President Prabowo Subianto is striving for an 8% economic growth rate in Indonesia. However, this goal is at risk due to the central government's budget cut policies, as outlined in Presidential Instruction (Inpres) Number 1 of 2025.
Consequently, he has urged his cabinet members and heads of state institutions to reduce non-priority expenditures by Rp 306.69 trillion.
Economist and Professor at the Faculty of Economics and Business, University of Indonesia (UI), Telisa Aulia Falianty, has indicated that the potential for economic growth may be jeopardized if the budget cuts are misdirected, such as reallocating capital expenditures to specific programs that yield minimal short-term ripple effects. "For instance, the Free Nutritious Meal program has a multiplier effect, as does business travel. When one is reduced to fund another, the net effect must be thoroughly assessed," Telisa stated to CNBC Indonesia on Friday, January 24, 2025.
"In the initial phase, the contractionary effects are more apparent, while the expansionary effects may take time to manifest, posing a downside risk to economic growth in 2025," she emphasized.
Telisa pointed out that some of the budgetary cuts implemented by Prabowo have previously supported Indonesia's economic growth, such as travel expenditures that boost activity in the transportation and hospitality sectors. However, prioritizing the budget for a single program could diminish growth effects in these areas.
"Typically, sectors like transportation and hotels have more immediate impacts, whereas the Free Nutritious Meal program may have direct effects but also requires time to realize its multiplier effects, as it is a new initiative," Telisa explained.
