Indonesia’s Prabowo to allow debt-to-GDP ratio to reach 50%, FT reports

JAKARTA (Reuters) -Indonesian President-elect Prabowo Subianto will allow the nation’s debt-to-GDP ratio to rise to 50%, provided his administration can boost tax revenue, the Financial Times reported citing one of his closest advisers.

Prabowo’s brother and adviser Hashim Djojohadikusumo told the Financial Times in a London interview that Indonesia could retain its investment-grade credit rating even if the debt-to-gross domestic product (GDP) ratio rises to 50%.

“The idea is to raise the revenue and raise the debt level,” Hashim was quoted as saying in the article.

“We don’t want to raise the debt level without raising revenue,” Hashim said, pointing to “taxes, excise taxes, royalties from mining and import duties”.

The incoming government will maintain the status quo on the debt-to-GDP ratio, Sufmi Dasco Ahmad, the head of a team working on synchronising Prabowo’s policy agenda with the current government, told Reuters on Thursday.

Dasco also said the new government will keep the fiscal deficit under the limit of 3% of GDP.

“The fiscal policy will be used as a tool to boost private sector investment,” Dasco said.

The fiscal deficit under Prabowo’s administration will be under 3% while the debt-to-GDP ratio will be maintained at around 40%, Airlangga Hartarto, chief economic minister and senior official at Prabowo’s camp, told reporters on Thursday.

His team previously denied a media report that Prabowo planned to increase debt-to-GDP levels from under 40% to 50%. They said at the time the incoming president would continue to abide by existing fiscal rules.

Under those rules, the government’s budget deficit is capped at 3% of GDP and the debt-to-GDP ratio cannot exceed 60%.

Concerns about Prabowo’s borrowing plans weighed on bond prices and the rupiah last month, helping knock the currency to four-year lows against the U.S. dollar.

During campaigning, Prabowo had said he wanted to raise the public debt level while also pledging to boost the tax-to-GDP ratio to 16% from around 10%. He will take office in October.

Earlier this week, Tempo magazine reported Prabowo had formed a team to explore ways to remove the fiscal deficit and debt-to-GDP ratio ceilings to fund campaign pledges. His adviser for fiscal matters told Reuters he was not aware of any discussion to remove fiscal gap and debt ceilings.

($1 = 16,235 rupiah)

(Reporting by Ananda Teresi, Gayatri Suroyo, and Stefanno Sulaiman; Editing by John Mair and Christopher Cushing)


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