Indonesia’s investors fret over Prabowo’s free school meals pledge
- The president-elect’s US$4.35 billion plan to give away free meals and vow to be ‘daring’ on spending has rattled debt and currency markets
Prabowo and his team have tried to distance themselves from any suggestions of fiscal profligacy, and to assure market participants the incoming government respects the legal debt limits that cap its budget deficit at 3 per cent of economic output.
But for a market just getting accustomed to stability and recognition for fiscal prudence under current Finance Minister Sri Mulyani Indrawati, the mere suggestion of heavy spending has been unsettling.
Bond yields have risen and the rupiah has depreciated, though the currency weakness has largely been due to a resilient US dollar.
“Our base case remains that this is more of noise at the moment, but we do see increasing fiscal risk and hence the market may start to require more risk premium on Indonesian government bonds,” said Jenny Zeng, chief investment officer for APAC fixed income at multinational financial services company Allianz.
