The erratic back-and-forth shifting of excess budget balance (SAL) funds into and out of state-owned banks reflects haphazard budget management. The SAL funds, which should serve as a cushion for emergencies, were instead funneled into state banks and ultimately destined for President Prabowo Subianto's favorite projects. Once the funds had entered the banks, Finance Minister Purbaya Yudhi Sadewa pulled them back out, triggering a whole new set of problems.

Since September last year, Purbaya has disbursed 200 trillion rupiah in SAL funds – half of the reserves held at Bank Indonesia – to state-owned banks. He argued that the SAL funds were allocated to stimulate economic growth, rather than sitting idle in government accounts.

In reality, the money flowed into the Red and White Village Cooperatives and the free nutritious meals program – projects that offer no economic leverage. After state banks disbursed the funds as three-year term loans, Purbaya demanded them back. Consequently, bank executives are left scrambling to find new sources to plug the SAL gap.

The impact is no joke. In addition to a tug-of-war over interbank liquidity, interbank lending rates have surged. Under these circumstances, rather than stimulating the economy, the SAL funds are triggering new problems in the Indonesian banking sector. Even before the funds existed, banks were already struggling with unabsorbed liquidity.

Bank Indonesia data shows that undisbursed loans from general debtors have reached Rp2,576 trillion, or 22.41 percent of the total ceiling. Business owners are hesitant to draw down their loans because purchasing power is weakening and production costs are climbing due to the continuous depreciation of the rupiah against the US dollar. The S&P Global report on the manufacturing purchasing managers' index (PMI) for June 2026 confirms this industrial sluggishness.

According to S&P, Indonesia's manufacturing PMI stood at 46.9, plunging from 50 in the previous month. An index below 50 indicates that industries are curbing production or halting expansion. The Indonesian economy is moving closer to the edge of a crisis, as the tangible threat of a sluggish manufacturing sector is the mass layoffs.

Therefore, Purbaya's justification for withdrawing and increasing SAL funds to stimulate the economy is not only building castles in the air but also misleading the public. The withdrawal of SAL should have been decided jointly with the House of Representatives, as the funds are part of the State Budget. Purbaya's haphazard handling of the funds is making budget management even more chaotic.

In truth, this is the root cause of the economic sluggishness throughout nearly two years of Prabowo Subianto's administration. Fiscal credibility continues to deteriorate, causing public confidence in government policies to plummet. Investors no longer trust that the nation's authorities can properly manage the economy. International rating agencies, such as S&P and MSCI, continue to give poor ratings to Indonesia's economic indicators.

There is no other way to restore fiscal health than to halt wasteful and allegedly corrupt projects, such as the Red and White Cooperatives and the free nutritious meals program. Cutting budgets and restructuring these projects would offer hope that the government is willing to correct its flawed policies. As such, Minister Purbaya would not need to perform financial acrobatics by using the state's emergency savings cushion to inject bank credit under the pretext of boosting economic growth.

– Read the complete story in Tempo English Magazine

Source: https://en.tempo.co/read/2112606/risky-budget-balance-acrobatic