FOR an economy that’s often depicted as an ascendant power, decision-making in Indonesia has appeared remarkably haphazard lately. In an era when the dollar is very strong and emerging-market assets vulnerable, sudden lurches tend to be punished.
Since a financial collapse in the late 1990s almost dismembered the country, policymaking has been mostly steady and orthodox. Deficits have stayed within sensible legal limits and the currency has been allowed to fluctuate in response to broad developments.
Monetary policy has been reasonably transparent and devoted to fighting inflation and keeping the rupiah stable. Consistency has been a hallmark of economics under a succession of Indonesian administrations.
Things have been less predictable since President Prabowo Subianto took office in October.
The dash for faster growth that the new leader desires may prove costly if accompanied by a surplus of U-turns. Developments in fiscal policy and interest-rate setting have not been encouraging.
The latest surprise was a drive to cut government spending by about 8.5%, announced late last month. On the face of it, this is a laudable goal: Markets are keenly attuned to anything resembling loose budgets.
Brazil led emerging market-currencies, including the rupiah, lower around the turn of the year amid concerns about a fiscal blowout.
As a rule, the more exposed an economy is to swings in global capital flows, the more conservative it should be before branching out in new directions, especially when the existing course has served a country well.
Prabowo is dismissive of the 5% average growth achieved under former President Joko Widodo or Jokowi as he is popularly known. It’s fine to aspire to something more, but he should consider the context. Jokowi pressed for 7% and found that out of reach. How plausible, then, is 8%? Jokowi had ambitions for his nation, too, but critically left respected professionals to run policy.
Prabowo scored a coup when Finance Minister Sri Mulyani Indrawati, who had served in the post since 2016, agreed to stay on. She must now sell zigzags to investors unused to, and disinclined to indulge in, chaos. —Bloomberg
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. The views expressed here are his own.
