Digesting the views of Indonesia's new Finance Minister - Mr. Purbaya

14 Sep, 2025

Introduction

During the weeks between late August and early September, Indonesia saw a series of small‑scale riots ~ initially peaceful protests that escalated into clashes with police in cities of various sizes. The gist of the issue stems from the economic hardships felt by the people and on the contrary: House of Representatives' lavish lifestyle which appears to be prioritizing its own welfare.

--> essentially there's a massive imbalance in government regulation: on one hand ordinary people are squeezed by rising taxes, while on the other hand increasing allowances for members of House of Representatives.

Highlights how completely tone-deaf and detached from reality the people's representatives are.

Read this article if you want to dig deeper on the background of this event.

One consequence of the public protests was the reshuffling of the ruling Red‑White cabinet. In this post I'll be wearing my economist hat and interpret the views of the newly appointed Finance Minister.

Main reference

The primary reference of this post is this video where I'll comment some highlights / important points.

3:00 - on Asian Financial Crisis (1998) and The Great Depression (1929)

Agree on his points: fiscal and monetary policies need to be in-sync: on a slowing economy need to reduce interest rates and increase money supply / base money / liquidity in the market to keep the economy growing, and vice versa for an economy running too hot.

5:40 - on Global Financial Crisis (2008)

Same stuff, no counter argument.

7:00 - on Covid crisis (2020)

He pointed out when covid hit, the policies were: low interest rate, but negative liquidity ~ again this was a mismatched monetary and fiscal policy.

9:35 - on recent years (2024-2025)

It is clear from this point, Mr. Purba wants synchronized policies both monetary and fiscal. On 10:30 he critized previous policy where at one point it was implementing a loose money policy, however it got reversed (tight money policy) when the economy hadn't recovered fully.
We now understand better Mr Purba's point of view: if one policy (or a series of them) are being placed for a purpose: let's say to spur growth in a weakening economy, then it has to be implemented fully until the situation reversed (from weak/slow to growing economy). Otherwise there's no point on implementing the policies.

--> That’s a solid perspective. I agree with caveat: the economy is fluid and these days especially factoring volatile global macro environment, conditions can shift rapidly.

Additional reference point

There's an archived video dated April 2025 where Mr. Purba was giving presentation on Indonesia's economic prospects.

8:50 - on consumer confidence index in gov

This one is comical coz he stated the confidence in gov at that time (maybe up to Feb-Mar'25) was the highest ever recorded! Please note the survey has been long running for 25 years, however, on end of August (fastforward 5 months) there were riots on multiple cities...I'm not sure if Mr. Purba was being sarcastic with the result, or was the index supposed to be a contrarian indicator?

This is a great example of how a survey might be useful to tell a certain story or provide us with a glimpse of what's ahead, but situation can easily change. There is no one-size fits all situation with these indices / surverys.

12:00 - on the effect of chaotic global trade war

This part is interesting as on this one he praised and sweet-talked SMI (Sri Mulyani Indrawati - the previous Finance Minister) and Central Bank, he claimed they've been doing an excellent job on sustaining domestic economy. However if you pay attention and watched the main reference video carefully, you'd noticed Mr. Purba critized and trash-talked SMI and the Central Bank. So which one is true?

Also notice Mr. Purba took credit when the Indonesian economy avoided destruction multiple times (in 2008, 2015 and 2020) since he provided consultation / advices to the government. As if the Indonesian economy wouldn't be able to recover if the gov didn't listen to his suggestions. Is this true? Or was it just the cycle that had ran its course? Post every economic crisis event, there had always been a rebound and I think that was exactly what happened.

The cycle had ran its course ~ economy rebounded post crisis event.

How to check: in major economic crisis events, every other countries are experiencing the same drop in their economy, what do you think happened to these countries afterwards? Did they stayed in crisis mode to infinity, or did their economies recovered? Exactly! All countries recovered post crises nonetheless, so in conclusion it was a false claim by Mr. Purba and the Indonesian economy would have recovered anyway (with or without his advices).

What's next with the New Finance Minister

I'm gonna keep this short:

Pros:

It's easy to see Mr. Purba has a pro-growth mindset, which is great (if done correctly)!
This should lead to a loose-money policy ~ increase in money supply to make sure the economy got plenty of liquidity.
Shortcut for rapid near term impact, especially for the stock market.

Cons:

Pro-growth / loose-money policy without handbrake tends to result in elevated inflation rate.
Combined with the synced policy between fiscal and monetary, this means low interest rate is a given. This combo usually result in decreasing the value of money ~ the local IDR currency will continue to weaken against USD, probably at increased speed with Mr. Purba at the helm.
Taking shortcuts for near term gain could potentially result in negative side effects.

Note #1: the weakening IDR will boost exports, however in the second video Mr. Purba stated majority of Indonesia's primary economic driver is domestic demand, while exports is only 10% of the total economy (my numbers shows exports account for 20-25% --> will be explained further in the DATA section). Since Indonesia depends largely on its domestic economy, this weakening IDR might hurt the economy in the form of elevated inflation level.

Note #2: one of the concerns with increasing liquidity is whether the market will use/absorb this added liquidity or not? If you think about it, which one is harder to implement: loose-money (plentiful liquidity) or tight-money (strict liquidity)?

For me it's obvious: tight-money is harder to implement since the Central Bank need to reduce the amount of liquidity in the market. On the other hand loose-money policy is easier to do especially with the added bonus of rapid near term impact, it is very enticing (fast & easy method).

Even if the market absorbs the additional liquidity, will it be used properly? Coz in a weakening economy there's a reason why banks tends to be stricter / hesitant to give new credit: the banks need to manage their NPL (non-performing loans) level and it's not hard to see why the banks hesitant on new credit in a weak economy.

Let's say the Finance Minister and the Central Bank issue a directive urging banks to ease credit conditions in line with the loose‑money policy. In a bearish (unfavourable) scenario, this could backfire: higher credit growth may lead to a rise in NPL, which in turn could trigger a whole new level of problems and even a systemic financial collapse. Conversely, in a bullish (favourable) scenario, the policy could play out smoothly, leading to a “happily ever after” outcome.

Suppose they choose a balanced policy mix: promoting growth with loose-money policies while extending credit cautiously and prudently to keep NPL at acceptable levels. Isn’t that essentially what the previous Finance Minister already implemented?

Prudence and discipline remain two of SMI’s greatest strengths.

Conclusion

I speculate the balanced policy mix is not what the new Finance Minister will choose, instead I expect him to go full on "pedal to the metal" with the pro-growth agenda. It may also be evident that I’m somewhat skeptical of Mr. Purba's approach and some would think this skepticism comes from his pro-growth loose-money policies would not be beneficial to me personally. You couldn't be more wrong; I live and breathe in the stock market, the policies that are going to be implemented by Mr. Purba will be benefit me in the most direct and positive way: stock portfolio goes up to the moon!

One of the quick wins: bullish on the local stock market (IHSG).

Moreover, the hedge fund where I work holds its assets primarily in USD, so a strong Dollar combined with a weak Rupiah would be an added advantage should we decide to allocate capital to the Indonesian stock market (IHSG). In other words, we would enjoy a double benefit since local assets would be cheaper due to the weak Rupiah.

So why am I being so skeptical with Mr. Purba? Because I don't think these policies are what the country need, the new Finance Minister is chasing shortcuts and quick wins. In the financial markets what goes around comes around, you took shortcuts and quick wins, it will get back to you in other (negative) form.

What looks like an easy win today can turn into a negative consequence later.

For example: the directive to extend easy credit while ignoring prudency --> this will get back to the economy in the form of increased NPL and as mentioned if it goes too high then the NPL could trigger systemic financial collapse.

But I'm perfectly fine if Mr. Purba is going full-throttle with the pro-growth loose-money policy, my own bottom line would benefit greatly from it!

Addendum - data, Data, DATA!

Talking about economy and finance means nothing if there's no data to establish / backup the base fundamentals.

Data from different eras: money supply, currency, GDP. I'm using GDP constant price since it calculate real GDP output, where GDP nominal price has inflation built-in into the numbers. You can check the source here.
Exports to GDP From my data the exports to gdp ratio is around 20-25%, I have no idea where Mr. Purba got his 10% number as he mentioned in the second video. Check the source here.
Currency: USD/IDR
The period selected here 2004 - 2014 was the SBY era, where the same theme loose-monetary policy was applied and it lead to faster IDR weakening against USD. Note a strong USD and weak local currency is beneficial to exports and net exporting countries tend to deliberately weaken their local currencies so their goods and services become cheaper relative to others. You can use whatever currency data you want, but I used TradingView and zoomed out to the 2004 - 2014 period.

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