Structural challenges keep risk premiums elevated

While Indonesia’s economic performance pillar remained relatively resilient at 24th globally, the deterioration was mainly driven by weaker government and business efficiency, infrastructure quality, and institutional effectiveness, underscoring that investor decisions are increasingly influenced by governance, regulatory certainty, and productivity rather than market size alone. The latest ranking reinforces concerns over Indonesia’s long-term investment competitiveness, particularly as neighboring economies such as Vietnam continue to strengthen their position as regional manufacturing hubs.

The Ministry of Finance has begun gradually withdrawing the government's Budget Surplus Balance (SAL) deposits from state-owned banks (Himbara), as part of its policy coordination with BI to strengthen Rupiah stability and domestic financial markets. The move will improve the effectiveness of BI's liquidity management, particularly as the returned funds placed at BI receive higher remuneration and support the central bank's broader stabilization efforts, although it may modestly reduce excess liquidity within the banking system. Nevertheless, we expect the impact on banking liquidity to remain manageable given the gradual withdrawal process and the availability of alternative funding sources, including DPK growth, the interbank money market, and BI's SBN repo facilities. The policy also reflects closer fiscal-monetary coordination in preserving financial stability, while ensuring government cash management remains aligned with evolving financing needs and exchange rate stabilization objectives.