Gerindra lawmaker denies rumors of plans to change state finance law – Laws

Gerindra Party member Prabowo Subianto, who also chairs the president-elect’s transition team, has denied reports of alleged plans by the new government to amend the state finance law.

Report published by Rate July 7 cites three anonymous sources in the government and the House of Representatives who were considering the idea of amending Law No. 17/2003 on State Finances in order to raise the fiscal deficit and debt limits.

Such a move could mean a relaxation of fiscal discipline, which on the one hand would allow for adjustment to higher budget spending, but on the other hand could undermine market confidence in Indonesia’s public debt.

The law mandates that the government’s budget deficit, the shortfall that occurs when the government spends more than it collects in taxes and other revenues, should not exceed 3 percent of gross domestic product (GDP) in a fiscal year. It also limits the country’s debt to a maximum of 60 percent of GDP.

These restrictions are intended to ensure fiscal policy discipline and prevent a monetary crisis similar to the one that hit the country in 1997 and 1998.

Indonesia has not breached any of the limits since the law was passed, except during the COVID-19 pandemic when the government temporarily lifted the deficit limit to cushion the economic impact of measures to contain the virus by amending a 2003 law.

As a result of this policy, the budget deficit in 2020 amounted to as much as 6.14% of GDP, while the debt-to-GDP ratio increased to almost 40%, but still significantly exceeded the 60% mark.

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