Indonesia Abandons Bank-Based Economic Stimulus

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Indonesia is abandoning the placement of part of its budget funds in state-owned banks and redirecting them into the economy through direct spending, reports Bloomberg. The decision was taken after an assessment showed that the measure failed to deliver a noticeable increase in lending. Authorities are now relying on fiscal tools as a more effective way to support economic activity.

Indonesia’s Ministry of Finance will withdraw 75 trillion rupiah, or about $4.49 billion, which had previously been earmarked for placement in state-owned banks. Finance Minister Purbaya Yudhi Sadewa announced this at an event marking the reopening of market trading in Jakarta. The funds will be reallocated to central government spending and transfers to regional administrations.

The minister stressed that withdrawing the funds from the banking system would not have a negative impact on the volume of money in circulation. According to him, the funds will be immediately returned to the economy through government spending, generating a positive multiplier effect and proving more effective in supporting growth.

After taking office four months ago, Purbaya placed 276 trillion rupiah of budget reserves in six state-owned banks. The recipients included the country’s largest financial institutions, such as Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia. The initiative was aimed at stimulating lending activity and accelerating economic growth in Southeast Asia’s largest economy.

Typically, such funds are used to ensure government liquidity, cover emergency spending and finance the budget deficit. However, this week the minister said part of the deposits would be withdrawn, noting that the impact on lending was weaker than expected due to insufficient policy coordination with the central bank. The central bank has noted that weak lending dynamics last year were driven not by banks’ capacity, but by limited demand from businesses. Companies remain in wait-and-see mode, preferring to finance operations from internal resources amid persistently high interest rates.



Mohit Mirpuri, senior partner at SGMC Capital, believes that redirecting the funds could have a stronger stimulative effect, as government spending typically carries a higher economic multiplier than idle liquidity in the banking system.

Following the minister’s statements, shares of state-owned banks came under pressure. Bank Rakyat Indonesia shares fell by 1.1% on Friday morning, Bank Negara Indonesia declined by 2.5%, and Bank Mandiri lost about 1.5%. Indonesia’s stock exchange was closed on Wednesday and Thursday, amplifying the market reaction after trading resumed.

The regulator forecasts that by the end of 2025, credit growth will be closer to the lower bound of the 8–11% target range. In November, the year-on-year figure stood at 7.74%. GDP in 2026 could increase by 5.3%, provided fiscal stimulus is used more actively and domestic demand remains resilient. OECD analysts expect growth of around 5%, with inflation staying within the target range.

According to the World Bank, Indonesia’s economy expanded by about 5% in the first nine months of 2025, and similar growth rates are expected to continue in 2026–2027. Growth is being supported by government spending, investment activity and exports, while key risks include labour market conditions and the need to boost productivity.



Analysts at International Investment note that in the near term, Indonesian authorities do not view the banking channel as the main driver of faster economic growth. The focus is on budgetary and regional spending as a faster and more manageable tool for supporting domestic demand, which for investors means a lack of short-term growth drivers for banks with state participation.