MAKING INDONESIA’S FISCAL STIMULUS WORK

 By KUSNANDAR & CO., Attorneys at Law – Jakarta, INDONESIA

 

Indonesia’s decision to raise the budget deficit target to 2.68 percent of GDP in the 2026 state budget signals commendable fiscal courage amid global economic uncertainty. However, this boldness must be matched by institutional readiness and sound governance to ensure that fiscal stimulus does not go to waste. The experience of social assistance distribution during the Covid-19 pandemic offers a crucial lesson. Numerous beneficiaries missed out or received aid late, revealing persistent bureaucratic capacity gaps and weak inter-agency coordination that hamper effective and efficient allocation of public resources.

 

These institutional risks cannot be underestimated. Administrative shortcomings risk wasting public funds and widening social inequality. For example, funds intended to empower micro-enterprises and village cooperatives can be drained by corruption or distribution distortions. Thus, bureaucratic reform and digital integration of data systems are critical to guarantee that stimulus funds reach their intended targets.

 

From a medium-term fiscal perspective, increased deficits without accompanying tax reform and spending efficiency pose a threat to Indonesia’s fiscal sustainability. Rising debt burdens could crowd out productive investment and increase debt servicing costs, ultimately dampening purchasing power and slowing economic growth.

 

Macro-policy coordination is also key. Expansive fiscal stimulus must align with monetary policy to maintain inflation and exchange rate stability. Without synergy, risks of runaway inflation and market volatility rise, disproportionately harming the most vulnerable populations.

 

Moreover, transparency and accountability in public budget management are vital to policy success. The public must be assured that every rupiah spent yields positive impact and is managed responsibly. Open communication and participatory oversight involving civil society can strengthen legitimacy and policy effectiveness.

 

Indonesia’s fiscal boldness is a necessary and welcome step in uncertain times. Yet without deep reforms in governance, implementation capacity, and policy coordination, such boldness risks becoming a burden rather than a catalyst for national development. Comprehensive reform must underpin fiscal expansion to ensure it drives inclusive and sustainable growth.

 

Indonesia must not only dare to allocate larger budgets but also have the courage to build systems that ensure those budgets work for the people—not become sources of waste or inequality. Only through this combination of courage and reform can progressive fiscal policy truly deliver a better future for the nation.

K&Co. - September 22, 2025