It is a policy that needs support from the demand's side so the funds do not simply sit in bank balance sheets, but instead trigger a domino effect in the economy.
Replacing Sri Mulyani Indrawati, often regarded as the guardian of Indonesia’s fiscal credibility across three administrations, Sadewa has begun shaping a new fiscal direction.
On his second day in office, he described his approach as having a “cowboy” style.
He is adopting a financial intermediation strategy by mobilizing idle government cash reserves held at Bank Indonesia (BI) and transferring them to state-owned banks (Himbara).
Besides ensuring that credit is channeled productively, his success will depend on maintaining fiscal discipline for sustainability and ensuring fiscal-monetary coordination for stability.
In his first working meeting with Commission XI of the House of Representatives (DPR) on Wednesday (September 10), Sadewa proposed transferring Rp200 trillion of government funds out of a total Rp425 trillion from BI to the five Himbara banks.
He argued that the financial system has been “dry” as economic engines have not been running at full capacity. By shifting funds from BI to Himbara, liquidity is expected to flow into the banking system, lowering bank funding costs and facilitating credit to the real sector.
Sadewa wants the “agents” of the economy, which are the banks, business actors, real-sector entrepreneurs, to operate optimally through their respective channels.
However, he noted that liquidity alone cannot drive growth. While an injection can boost credit supply, banks will lend only if aggregate demand is sufficiently stimulated.
If demand remains weak, firms or households will still hesitate to borrow from banks, making the funds just lie idle in the banking system. Without confidence in demand, banks tend to be cautious in disbursing credit so liquidity does not turn into loans.
For this reason, this policy needs to be paired with demand-side levers in the real sector, such as speeding up implementation of priority government programs, and economic stimulus for people.
That stimulus might include accelerating and improving the quality of priority programs like Free Nutritious Meals (MBG), the Red and White Village Cooperatives, and building three million homes, so that they truly generate multiplier effects in the economy.
Those economic benefits can include job creation and income increases. Incentives are also needed for workers and businesses that have been impacted by economic sluggishness, so they can help drive aggregate demand upward.
The government also needs to quickly find solutions for export diversification so that businesses can sustain operations amid global economic escalation.
Incentive packages to bolster demand must run in parallel with the liquidity injection so that supplies meet demand, producing real economic benefits, not just more money in circulation.
Fiscal-monetary coordination
On the other hand, Sadewa's policy draws applause and attention after many years of conservative fiscal policy. However, coordination between fiscal and monetary authorities must be maintained so as not to send confusing signals to markets.
The mandates must remain clear between fiscal and monetary authorities.
Fiscal authorities should push intermediation through budget management, while the central bank’s role remains protecting inflation, rupiah stability, and money market interest rates.
On a technical level, there needs to be mutual understanding when the central bank should sterilize excess liquidity so that economic stability is maintained.
Economic literature around the world also shows how important coordination is between fiscal and monetary authorities to avoid conflicting signals, especially with regard to liquidity easing or tightening operations.
In terms of supervision, the Financial Services Authority (OJK) is giving necessary support, but also warns that banks must implement risk mitigation in credit disbursement.
Banking supervision
Voices from parliament have also grown louder to set risk fences around this liquidity policy.
Chair of DPR Commission XI, overseeing finance and banking, Misbakhun, emphasized the need for close coordination between the Finance Ministry and Bank Indonesia so that fiscal and monetary goals align.
This step is needed to control inflation and stabilize the rupiah exchange rate, while ensuring credit truly reaches the real sector.
He said liquidity placement should not stop at Himbara banks alone, but extend to healthy private banks, directed toward labor-intensive sectors.
Oversight of credit disbursements is crucial so they do not become “undisbursed loans.”
Indonesia draws lessons from the COVID-19 economic recovery efforts, which saw large liquidity injections but less impact on real sectors.
The country should avoid repeating past mistakes. This time, liquidity must be tied to real-sector stimulus, with rules that the funds should not be used to purchase government bonds (SBN).
The government, in collaboration with BI and OJK, needs to set measurable credit growth indicators by sector, from MSMEs, labor-intensive manufacturing, agriculture, and housing.
They will serve as benchmarks to decide whether the liquidity policy should be intensified or adjusted.
If liquidity injections translate into new production capacity, rising incomes, and expanding trade, the people should feel it in markets, small shops, job market, and factory output.
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