MUFG Expects Policy Continuity, Growth Targets May Be Difficult To Achieve

The Japan bank updates its thoughts on Indonesia post Wednesday's election. It expects policy continuity under the new regime (albeit with some uncertainty around key cabinet positions) It also sees the growth target of 6-7% as potentially difficult to achieve.

MUFG: "We expect economic policy continuity under a Prabowo government. During the campaign, Prabowo has pledged to continue implementing the key economic policies started by Jokowi, including downstreaming the commodity sector to increase exports value-add, accelerating infrastructure development, and developing the US$34bn new capital city Nusantara.

We still think Prabowo’s goal of achieving 6%-7% growth during his five-year term (2024-2029) is ambitious, though. His growth target is 1-2 percentage points higher than the average 5% pre-Covid pace of growth seen in Jokowi’s first presidential term (2014-2019). Reaching this pace of growth is not

impossible, but it will entail a massive ramp-up of local and foreign investment, tech know-how, and productivity growth, all of which will take time.

There remains an element of uncertainty for investors regarding the composition of Prabowo’s cabinet, particularly over who will be the next finance minister. Indeed, current finance minister Sri Mulyani has been a seasoned hand in managing government finances and keeping the budget deficits within the fiscal deficit cap of 3% of GDP, barring during the Covid years in 2020 (-6.1%) and 2021 (-4.6%). A steady hand at the Ministry of Finance will be crucial to maintain investor confidence. For now, it remains uncertain whether Mulyani will remain in her position under a Prabowo government. Rumors have recently circled around about her intention to resign due to Jokowi’s backing of Prabowo for the

presidency."