Susilo Bambang Yudhoyono Maintains Status Quo in 2015 Budget

The article narrates the proposed 2015 state budget which appears to indicate an attempt to maintain the status quo. In the draft state budget, the President of Indonesia, Susilo Bambang Yudhoyono (SBY) who is heading into the succession process in October 2014, has proposed no plans to reduce spending on subsidies, despite energy subsidies swallowing 15 percent of the state budget of Rp 2,020 trillion (US$172 billion). SBY instead raised the allocation for energy subsidies to Rp 363.5 trillion from the Rp 350.3 trillion in the 2014 budget. In addition, inefficient state spending was also reflected by the fact that SBY has maintained the current status quo in terms of distributing funds to ministries. Soon after it is published, the president-elect, Joko “Jokowi” Widodo, complained that the fuel subsidy is still too big and insisted that there is so much spending that could be more efficient which would provide greater fiscal room for reforms. In other words, the lack of fiscal room for development and growth-generating programs means that Jokowi’s campaign pledge to increase economic growth to 7 % within five years may not be achieved. He actually hopes that fund allocations for development programs grow over time, instead of seeing the enlargement of growth by mandatory and subsidy spending. In my opinion, a conservative 2015 state budget proposal will have both positive and negative impacts. The current government is apparently acting carefully and giving much consideration of the unstable condition of the world economy today. It means that the baseline of budget allocation is based on conservative macro economic assumptions. In detail, there are variables which are taken into consideration, such as: (i) economic growth stipulated at 5,6 percent; (ii) the inflation set at 4.4%; (iii) Rupiah’s exchange rate to the US Dollar upheld at 11,900 with a 6% interest rate; (iv) Indonesian crude oil price established at US$ 105 per barrel; (v) lifting target of oil and natural gas fixed at 2.1 million barrels per day. By doing this, it can be seen that the priority of the SBY administration right now is political and economic stability, instead of a drastic budget change, after a volatile presidential election. I think it is the right measure to ensure that the succession process will run in smooth way. However, the conservative budget allocation has been the subject of criticism toward SBY that he performs lacks program innovation. It can be viewed from the spending of ministries which is formed on the same pattern every year. The latest budget’s structure also shows that there is no ‘performance-based mechanism’ applied there, as some ministries with questionable track records in budget management are still able to receive higher funding. Moreover, funding for the Public Works Ministry which is responsible for growth-generating infrastructure projects, will stand at Rp 74.2 trillion next year, or Rp 300 billion less than was earmarked for 2014. This is in contrast to the increased allocation for the Defense Ministry, which will receive Rp 95 trillion, or Rp 11.7 trillion more than this year. SBY also maintained high allocations for ministries frequently under the spotlight for their poor budget disbursement and corruption, such as the Religious Affairs Ministry, which has been earmarked Rp 50.4 trillion, the fourth-largest fund allocation of any ministry. Although government officials have described the budget as a “baseline”, meaning it will offer ample space for the new government to revise it, I argued that any drastic alterations would not be possible. In practice, major changes in mandatory spending will be very difficult to implement. This will lock in the new government if they want to push for reforms. Next year, any chance of spurring economic growth would only come through a brave move to hike fuel prices and allocate the funds to sectors considered as productive in having a multiplier effect on the economy, such as infrastructure and tax incentives. I believe that the growth target can be reached if Jokowi is brave enough to cut the fuel subsidies, which are painful in the short-term, but attractive for the medium-term to long-term. (LFN)