• News & Article
• Finance Minister Purbaya's Policy Direction and its Implications for the Mutual Fund Industry

Finance Minister Purbaya's Policy Direction and its Implications for the Mutual Fund Industry

In his opening statement as Finance Minister, Purbaya emphasised a number of key agendas that will form the foundation of fiscal policy going forward. His focus includes liquidity transmission, accelerated budget absorption, enhanced tax credibility, and strengthened fair business competition.
This policy is considered important given the continued weakness in domestic demand and slow realisation of government spending, which has caused liquidity to decline and credit growth to stall.

Two Main Issues
Finance Minister Purbaya identified two obstacles that need immediate attention:
1. Weak domestic demand, such that household consumption is not yet optimal.
2. Slow government spending, such that state budget funds do not quickly flow into the real economy.

Both factors are a primary concern because they have direct implications for banking liquidity and the fiscal impetus to growth.

Government Follow-up Plan
A number of concrete steps have been announced to address these issues:
- Liquidity Injection
The government will place approximately Rp200 trillion in state funds in commercial banks. The aim is to lower borrowing costs and boost household consumption, with the proviso of strict oversight to prevent fictitious credit disbursement.

- Accelerated Government Spending
The President has mandated that budgets from underperforming ministries can be reallocated to programmes that are better prepared or directly oriented towards the public. Budget reallocation is expected to be completed by October at the latest.

- Budget Absorption Accountability
Each ministry/agency is required to conduct monthly evaluations with the Finance Minister to ensure that spending realisation is on target.

Stance on Strategic Issues
Beyond short-term fiscal measures, Finance Minister Purbaya also communicated several policy positions:
- Rejection of New Tax Amnesty
The government has affirmed that it will not repeat a tax amnesty programme as it is seen as reducing the confidence of compliant taxpayers.

- Excise Policy
Cigarette excise duty, which is already at approximately 57%, will not be raised sharply. The government's focus is on curbing illegal trade and protecting workers in related industries.

- Fiscal Deficit
The fiscal deficit limit will remain below 3% of GDP. Fiscal credibility, according to the Finance Minister, lies in the ability and willingness to meet debt obligations, not solely on the threshold of the figure.

- Fair Competition and Law Enforcement
There will be stronger action against smuggling practices, counterfeit goods, and illegal imports to protect domestic industry.

Implications for the Mutual Fund Industry
This more disciplined and growth-oriented fiscal policy brings a number of implications for the mutual fund industry:

1. Money Market Funds and Fixed Income Funds
Liquidity injection has the potential to lower lending rates and stabilise bond returns. This supports the performance of fixed income-based mutual fund products.

2. Equity Funds
Accelerated government spending, particularly on labour-intensive projects, can increase domestic consumption and provide positive catalysts for the banking, construction and consumer goods sectors.

3. Balanced Funds
Commitment to maintaining the fiscal deficit and state budget credibility provides macroeconomic certainty, thereby supporting a portfolio diversification strategy in equity and bond instruments in a balanced manner.

In other words, looser liquidity, increased consumption, and fiscal stability will create a more conducive investment climate, while also opening opportunities for the performance of mutual fund products across various asset classes.