Introduction to Indonesia’s Economic Experiment
In today’s world of economic uncertainty, Indonesia is trying out a new way of working together between its central bank, Bank Indonesia (BI), and the Ministry of Finance. This partnership involves BI buying government bonds and sharing the interest costs to fund projects like affordable housing and village cooperatives. The goal is to stimulate economic growth under President Prabowo Subianto’s Asta Cita agenda. While this policy offers short-term relief and injects liquidity, its long-term effects on the economy and market stability are being closely watched.
Opportunities for Growth and Liquidity
The burden-sharing scheme is designed to reduce the government’s borrowing costs by splitting the interest on $12 billion worth of bond purchases between BI and the Ministry of Finance. This not only helps lower costs for public programs but also aligns with BI’s plan to increase liquidity in the financial system while keeping interest rates low. For investors, this creates a favorable environment for sectors like construction and rural development, which could benefit from increased government spending on infrastructure.
Historically, similar schemes have shown positive results. For example, during the pandemic, BI’s $40 billion burden-sharing package helped stabilize markets and keep inflation under control, despite a significant fiscal deficit. The current scheme, with a projected fiscal deficit of 2.53% of GDP in 2025, seems more cautious, indicating a balanced approach to stimulating growth while maintaining fiscal discipline.
Risks and Challenges
However, this scheme also comes with risks. Critics warn that large-scale bond purchases could lead to fiscal dominance, where monetary policy is controlled by fiscal needs, eroding investor confidence. Economist M. Rizal Taufikurahman warns that such practices could undermine BI’s independence, making it seem like the central bank is under the influence of the Finance Ministry. The International Monetary Fund (IMF) has also expressed concerns about potential losses on BI’s balance sheet under certain policy scenarios.
The legal and political aspects of the arrangement further complicate the issue. Unlike the pandemic-era scheme, which was seen as a temporary measure, the current iteration lacks a clear exit strategy, raising questions about its long-term viability. Prolonged debt monetization could also strain BI’s credibility, particularly if inflationary pressures increase as demand recovers.
Market Impact and Reactions
The market’s reaction to the scheme has been mixed. On one hand, BI’s secondary market bond purchases have helped stabilize the rupiah amidst global challenges. On the other hand, government bond yields have risen, reflecting higher borrowing costs and investor skepticism about fiscal sustainability. Public debt issuance has surged, reaching $19.5 billion in the first half of 2025, highlighting the scale of fiscal reliance on central bank support.
Conclusion: Balancing Growth and Stability
For investors and the economy, the renewed burden-sharing scheme presents both opportunities and risks. While it offers near-term growth catalysts and liquidity benefits, the potential for fiscal dominance and erosion of institutional credibility cannot be ignored. The scheme’s success will depend on BI’s ability to maintain its independence, implement a credible exit strategy, and avoid inflationary pressures. As Indonesia navigates this complex policy landscape, stakeholders must remain vigilant, ensuring that the central bank’s actions align with long-term macroeconomic stability to preserve investor trust. The Indonesian Parliament’s oversight and BI’s transparency in communicating policy trade-offs will be crucial in this endeavor.
