Indef: Fiscal Injection Will Not Restore Economy, Problems Are In The Real Sector

Screenshot of Program Director from the Institute for Development of Economics and Finance (INDEF) Eisha Maghfiruha Rachbin. (ANTARA)

JAKARTA The Institute for Development of Economics and Finance (Indef) considers the government to be wrong if it considers the problem of economic stagnation to be overcome only by disbursing more fiscal to the public.

According to Indef Director Eisha Maghfiruha Rachbini, the main problem lies in the real sector which is still burdened by uncertainty, regulations that are not yet conducive, and the low confidence of business actors.

The policy only shifts funds from BI to banks aimed at increasing liquidity to encourage the real sector not to necessarily solve the problem. "When people's demand is down due to falling purchasing power, also on the supply side, the real sector is slowing down amidst high uncertainty," he said in an official statement, Sunday, September 28.

Based on the data, Eisha said the real sector was under pressure. This was reflected in vehicle sales from January to June 2025, which fell, with wholesale down 8.6 percent and retail 9.5 percent. Then, PMI manufacturing was in the contraction zone throughout the second quarter, while foreign direct investment (FDI) continued from Rp217.3 trillion to Rp202.2 trillion.

In addition, said Eisha, domestic demand was weakened. Household consumption slowed down, inflation rose to 2.37 percent from January to July 2025 from 1.07 percent in the same period last year, while layoffs increased 32 percent in the first semester of 2025.

"Consumer trust has also decreased, as reflected in the decline in the Consumer Confidence Index from 121.1 in March to 117.8 in June," he said.

Therefore, according to Eisha, fiscal policy should be directed at maintaining economic balance, not flooding liquidity which actually causes imbalance in the financial market.

"The Minister of Finance should also think more comprehensively about the impact of placing these funds on financial markets and the real sector. Because excessive liquidity injection can cause new problems," he said.

In fact, he continued, banking liquidity is not a problem. LDR ratio as of July 2025 is at 87 percent, still far below the OJK safe limit of 94 percent. Credit growth is only 6.7 percent almost balanced with DPK growth of 6.6 percent, while the AL/DPK ratio is still stable in the range of 27.08 percent in July.

Then, the placement in SBN and SRBI is around Rp. 790 trillion. Annual growth of 9.51 percent in June 2025 compared to June 2024. This figure is quite high, even the growth of bifurcatesbursed loans in persero banks even reached 20.9 percent, reflecting the uncertainty of the business world. Meanwhile, credit growth was 7 percent as of July 2025.

"This data does not reflect the problem of liquidity, but the weak demand side, where industry and business actors face high uncertainty in running a business," he said.

Eisha said that the position of Bank Indonesia's monetary operations per week in September reached IDR 991 trillion, up from IDR 904 trillion in the first week of September 2024. He said, this reflects that there is an access liquidity that is not channeled to credit. Instead, most liquidity (about 70 percent) processes are placed on SRBI because of high interest.

Meanwhile, the position of bank funds in SBN in the week 1 of September 2025 reached IDR 1,545 trillion, up from IDR 1,505 trillion in the same period in 2024.

Reflecting on this data, Eisha said the current challenge lies in the weak demand for credit. According to him, the government needs to implement a fiscal policy strategy in encouraging people's purchasing power.

"The role of fiscal policy in carrying out economic stabilization is intended as a cushion for shocks when people's purchasing power drops, especially those with low income," he said.

Therefore, according to Indef, the government needs to direct fiscal policies to encourage people's purchasing power and improve consumer confidence, especially low-income groups. Stimulus, which is already running, including the 8+4 incentive package, is considered insufficient because it only has short-term effects.

"Without improvement in revenue distribution and continued strengthening of the domestic demand side, the stimulus effect will quickly subside once fiscal intervention is stopped," said Eisha.

Eisha said liquidity injection without structural reforms risks deepening the decoupling between the monetary and real sectors.

"Structure reform to improve the investment climate and business is absolutely necessary to increase business certainty so that the business world is encouraged to expand," he explained.