Behind Indonesia’s Budget Cuts: Political Deals and Fiscal Stresses

By Tempo.co current affairs podcast Bocor Alus Politik, Contributors: Pramono, Rikang, Hussein, Francisca, and Egi, February 7, 2025

JAKARTA — The Indonesian government and Indonesia’s House of Representatives (DPR) have teamed up to slash the budgets of government ministries by a total of 300 trillion rupiah ($20 billion), a move aimed at reallocating funds to President Prabowo Subianto’s key election programs, including free lunches for school students, and the development of Indonesia’s new capital city known as Nusantara (IKN). Yet, the cost-cutting effort has sparked debate, with critics pointing to political maneuvering, institutional compromises, and the potential for an impact on essential public services.

Presidential Directive and Fiscal Realities

The cuts were initiated through a presidential instruction (Inpres) issued on January 22, 2025, followed by a directive from the Ministry of Finance requiring ministries and agencies to adjust their budgets. More than half of the reallocated funds—approximately 100 trillion rupiah ($6.6 billion)—will support the free school lunch program (MBG), which was initially budgeted at 71 trillion rupiah ($4.7 billion) in the 2025 state budget (APBN). “The initial allocation was clearly insufficient, given the program’s nationwide scope,” said Goida Rahma, Tempo’s economic journalist, during the Bocor Alus Politik podcast.

Unlike previous budgetary measures during the COVID-19 pandemic, which involved temporary freezes, the current cuts are permanent. Government ministries must now reduce expenditure across a variety of sectors, including operational costs, infrastructure development, and essential services. “This is different from the COVID-19 budget reallocation. Now, the funds are permanently removed, not just frozen,” explained Fransiska Kristi Rosana, who contributed economic analysis during the podcast.

Political Players and Institutional Compromises

Despite the significant impact on public services, the decision-making process largely bypassed the Ministry of Finance. According to Hussein, a Tempo political journalist, President Prabowo determined the cuts before involving the finance ministry, supported by Deputy Speaker of the DPR, Sufmi Dasco Ahmad, and Minister for the State Secretariat, Pratikno. Head of the House Budget Committee (Banggar) Said Abdullah also played a central role in coordinating with parliamentary factions.

“A compromise was reached to exclude certain institutions from the cuts,” noted Pramono during the podcast. The House of Representatives itself, along with high-ranking bodies such as the Supreme Court, the Constitutional Court, the National Audit Board (BPK), and the Financial and Development Supervisory Agency (BPKP), will not face reductions. The military (TNI), police, and State Intelligence Agency (BIN) are also protected from major cuts. “Maintaining national security and supporting tax enforcement requires stable funding,” he added.

Consequences for Public Services and Economic Growth

Civil servants have reported reduced benefits, such as transportation allowances and meal subsidies, contributing to low morale. Essential infrastructure projects, healthcare services, and educational programs are expected to be curtailed. Tempo journalist Egi highlighted the impact on the National Human Rights Commission, which will see its budget halved from 112 billion rupiah ($7.4 million) to just over 50 billion rupiah ($3.3 million). “This will severely restrict investigations into human rights violations, including high-profile cases like the Munir assassination and the Bumi Flora massacre,” said a Commission commissioner.

Economically, the cuts could slow growth by reducing government spending, a key driver of Indonesia’s economy. “Operational cuts will impact the private sector, especially industries that rely on government contracts and business travel,” added Tempo journalist Rikang, referencing comments from the Indonesian Hotel and Restaurant Association (PHRI). Local governments are also affected, with intergovernmental transfers reduced by 50 trillion rupiah ($3.3 billion), limiting their capacity to deliver public services.

Looking Ahead: Balancing Priorities Amid Fiscal Constraints

Government officials defend the cuts as necessary to maintain fiscal stability. “With 800 trillion rupiah ($53.3 billion) in maturing debt and a 700 trillion rupiah budget deficit ($46.6 billion) to cover, increasing borrowing is not an option,” said a senior official from the Ministry of Finance. The debt-to-GDP ratio is capped at 3%, leaving expenditure cuts as the primary solution.

Still, the decision to prioritize the free school lunch program and new national capital city over infrastructure and social services has drawn criticism. “While the lunch program may stimulate the agriculture sector and improve child nutrition, the long-term trade-offs, particularly the program’s swelling first-year budget from 71 trillion to 171 trillion rupiah, are concerning,” said Tempo journalist Hussein, reflecting on the podcast discussion.

As the government moves forward with its fiscal consolidation efforts, the challenge lies in balancing short-term political commitments with long-term economic growth and social welfare—a task that will continue to shape Indonesia’s politics and economics over the near and medium term.

Watch the whole show here:

This article is based on Bocor Alus Politik, a weekly podcast by Tempo journalists Pramono, Rikang, Hussein, Francisca, and Egi, offering behind-the-scenes opinions  on topical news in Indonesia. New episodes are released every Saturday.

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