So Far So Good, But What Next?

Manggi Habir

President Jokowi's second cabinet reshuffle was expected, but not changes to his ministerial line up. The big surprise was the appointment of former finance minister, Sri Mulyani Indrawati, who returned to her previous post, after a six-year stint as managing director of the World Bank. Sri Mulyani is a well-known and well-regarded economist, both locally and abroad. Market sentiment responded positively to the cabinet changes, with the rupiah stable at the Rp13,100 per US dollar level, while the Jakarta Composite Index (CSPI) climbed up to 5,350. With the rupiah stable and the July year-to-year inflation below market expectations at 3.2 percent, the market expected another 25 basis point cut in interest rates, but Bank Indonesia decided to keep its rate at 6.5 percent.

The first challenge for the the new finance minister will be to secure the government budget. Latest mid-year numbers show tax revenue falling far below its target. As a result, the government's budget deficit to the GDP has widened, although still below the 3 percent limit. Spending cuts are already underway. Additional revenue is expected to come from tax amnesty payments, which is calculated based on a percentage of taxpayer's assets not yet reported in their annual income tax returns. This applies to individuals and institutions and their respective undeclared assets held locally and overseas. If the overflowing attendance of recently held tax amnesty seminars is anything to go by, the potential tax revenue from the tax amnesty program could potentially be quite large.