Stabilization efforts continue amid lingering global uncertainty

While the latest escalation has increased geopolitical uncertainty, commercial shipping through the Strait of Hormuz continues and oil prices have continued to ease as tanker traffic gradually normalizes, suggesting that supply disruption risks remain contained for now. In our view, the recent developments highlight that geopolitical risks remain highly fluid, leaving global markets vulnerable to renewed volatility should negotiations fail to resume. As such, safe-haven demand for the U.S. Dollar is likely to remain elevated, while emerging market assets, including Indonesia, may continue to face intermittent pressure until a more durable ceasefire and broader agreement are reached.

The government is preparing to refocus the Free Nutritious Meal (MBG) program by potentially reducing its budget by up to IDR50tr and lowering the number of beneficiaries from 62.5 million to around 49 million, reflecting growing fiscal constraints and efforts to improve governance and spending efficiency. The adjustment would follow the earlier reduction in the 2026 allocation from IDR335tr to IDR268tr, alongside tighter beneficiary targeting and a temporary halt to the expansion of new kitchens. In our view, the proposed refocusing should improve the program's fiscal sustainability and targeting effectiveness while creating additional fiscal space for other priority spending. Nevertheless, the policy also highlights the government's increasingly limited fiscal flexibility amid rising expenditure commitments, suggesting that maintaining fiscal credibility and balancing social priorities with budget discipline will remain key challenges going forward.