On March 16, according to Bloomberg, Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto stated that Indonesia is considering imposing a &#34;windfall tax&#34; on commodities.
Regarding the specific form, he revealed that it is still unclear whether it will be implemented as a new tariff or by raising existing tax rates. He emphasized that the decision to impose a &#34;windfall tax&#34; will not be based on short-term price fluctuations, but rather on whether commodity prices show a sustained upward trend.
In terms of fiscal policy, the government will focus on controlling expenditures, ensuring that the budget deficit does not exceed 3% of GDP. Hartarto stated, &#34;As long as the conflict in the Middle East does not last more than five months, we will still adopt a budget efficiency plan to keep the deficit within 3%.&#34; The Indonesian government is still unable to determine the duration of the conflict.
<h2>Upholding the 3% Deficit Limit, Temporary Breach Only in Extreme Cases</h2>
Indonesian President Prabowo Subianto has clearly stated that the government will, in principle, adhere to the 3% budget deficit limit, and will only consider a temporary breach in extreme emergencies similar to the COVID-19 pandemic. This statement addresses recent market concerns about a potential loosening of Indonesia's fiscal discipline.
According to Bloomberg, Prabowo stated in an interview at his official residence in the southern suburbs of Jakarta on Saturday that if the situation in the Middle East leads to sustained high international oil prices, the government may temporarily approve a deficit exceeding 3% of GDP, but he emphasized that such a situation should be compared to the COVID-19 pandemic—during which Indonesia's fiscal deficit exceeded the legal limit for two consecutive years to support emergency expenditures. He pointed out that the 3% deficit limit is a &#34;good tool for self-restraint,&#34; and unless there is a &#34;major emergency like COVID,&#34; it will not be revised.
This statement directly addresses recent signals of loosening within the government. Last week, Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto listed temporarily lifting the deficit limit as one of the options to respond to high oil prices; Finance Minister Muhammad Chatib also warned that if the average crude oil price rises to $92 per barrel this year and the government does not cut expenditures, the budget gap could expand to 3.6% of GDP, while the current budget assumes an average price of $70 per barrel. Prabowo's latest statement provides a clearer anchor for market expectations.
Indonesia's 3% budget deficit limit system was established in the early 2000s after the Asian financial crisis and has long been viewed by investors as a core pillar of the country's fiscal discipline. However, since Prabowo took office in October 2024, Indonesian assets have continued to be under pressure. This year, Fitch and Moody's have both downgraded Indonesia's credit rating outlook to negative, citing weakened policy certainty and credibility—this assessment has been rebutted by the Prabowo government. Meanwhile, the Indonesian rupiah exchange rate hovers near historical lows, further driving up energy costs dominated by imported fuels.
<h2>Oil Price Impact on Fiscal Limits, Subsidy Adjustments Affecting Livelihoods</h2>
As the world's fourth most populous country, Indonesia is highly dependent on fuel imports, and the oil price pressure brought about by the escalation of the situation in the Middle East is directly impacting the fiscal situation. Prabowo stated in the interview that the government is confident in avoiding an increase in subsidized fuel prices, but if oil prices exceed $120 per barrel for an extended period, the situation will be &#34;very difficult.&#34; Currently, the government has committed to maintaining subsidy prices unchanged during the Eid holiday period—this year, it is expected that over 100 million people will travel during the holiday
Subsidized fuel price adjustments have historically been very sensitive in Indonesia, with cheap fuel widely regarded as a symbol of the people's economic rights and the country's sharing of resource dividends. To reduce fuel consumption, Prabowo revealed that the government is considering implementing a four-day workweek and increasing online meetings as energy-saving measures

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Indonesia is considering imposing a "windfall tax" on commodities, with implementation depending on whether prices show a sustained upward trend rather than short-term fluctuations. The government reiterated its commitment to a 3% budget deficit limit, with President Prabowo stating that temporary breaches would only occur in extreme situations similar to COVID-19. The current pressure on oil prices due to the Middle East conflict poses a direct impact on public finances, with the Indonesian rupiah hovering at historical lows. The government has promised to maintain fuel subsidy prices during Eid, but if oil prices exceed $120 for an extended period, the situation will be "very difficult."

- On March 16, Indonesian Minister of Economic Coordination Hartarto announced that Indonesia is considering imposing a "windfall tax" on commodities, though the specifics remain unclear.  
- The government aims to maintain a budget deficit below 3% of GDP, with President Prabowo Subianto emphasizing that any breaches would only occur during extreme emergencies like the COVID-19 pandemic.  
- Rising oil prices due to Middle East tensions pose fiscal challenges, but the government is committed to keeping fuel subsidies unchanged for the upcoming holiday period, while exploring energy-saving measures such as a four-day workweek.

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Indonesia plans to impose a "windfall tax" on commodities, facing a test of its deficit red line against oil prices