Jakarta. Former Bank Indonesia governor Soedradjad Djiwandono, who is also President Prabowo Subianto’s brother-in-law, said Indonesia could fall short of inclusive growth unless fiscal and monetary policies are better aligned.

Speaking at the Sadli Public Lecture hosted by the University of Indonesia’s Social Economic Research Institute (LPEM FEB UI) and Australian National University, Djiwandono said economic stability alone is not enough if fiscal and monetary policies operate separately.

“Sustainable economic growth with meaningful improvement in equality requires the active synchronization of monetary and fiscal policy,” he said, emphasizing that both must be directed toward the real sectors where most Indonesians work.

He stressed that the challenge is not theoretical, but rooted in Indonesia’s own experience navigating crises. Reflecting on the 1997–1998 Asian Financial Crisis, Djiwandono recalled how weak institutional arrangements, including the lack of central bank independence, made it difficult to carry out necessary but politically costly decisions.

“The absence of central bank independence creates a structural vulnerability,” he said. “Technically correct decisions can become personally costly for policymakers.”

He contrasted that episode with Indonesia’s resilience during the 2008 global financial crisis, when stronger banking regulations and institutional reforms helped prevent systemic collapse. “Ten years later, no bank needed to be liquidated. That showed the system had learned,” he said.

Despite that progress, Djiwandono pointed to a more persistent constraint: Indonesia’s limited fiscal capacity. He highlighted the country’s tax ratio, which remains low compared to regional peers, as a critical bottleneck to financing growth.

“There is no reason whatsoever for the ratio to be so low,” he said. “If tax revenues increase, there will be ample funds to finance productive investment, and growth will follow.”

He suggested that beyond technical reforms, the government could also use “moral suasion” to encourage greater compliance from large businesses, arguing that stronger revenues would ultimately benefit the private sector through higher and more evenly distributed growth.

Djiwandono repeatedly underscored that effective policy coordination depends not only on formal frameworks, but also on trust among policymakers. “Without trust and mutual respect, what results is mere bickering and unhealthy political competition, a recipe for ruin,” he said.

Beyond macro policy, he called for a stronger focus on the real economy, including agriculture, downstream industries, and small and medium enterprises, to ensure growth translates into broader employment and income gains.

Looking outward, Djiwandono said global trade disruptions and external uncertainty could still pose risks, particularly through commodity price shocks affecting inflation and production costs. However, he noted that Indonesia is relatively less exposed than many economies, though vigilance remains necessary.

He also supported efforts to expand the use of local currencies in trade settlements, calling them “the right policy” to help reduce reliance on US dollar reserves.

“Monetary policy can control inflation. Fiscal policy can finance investment,” he said. “But sustainable growth that improves distribution requires both working toward the same goal.”