In fiscal policy, Yudhoyono's administration never wavered from its commitment to exercise a prudent and disciplined fiscal policy. Budget deficits have been maintained at 0.5-1.5 percent of GDP, well below international standards.
Aggressive tax collection, accompanied by tax reforms, has yielded substantial growth in tax revenue. This year's tax revenue is projected at Rp 652 trillion, more than double the tax revenue in 2004.
Subsidies, the hottest spot in the government budget reached Rp 275 trillion in 2009, or 28 percent of government revenue. By adjusting domestic fuel prices to international market prices, subsidies could be cut to 15 percent of government revenue. This means, a sizable amount of money could be freed that could be allocated for urgent expenditure in social welfare and infrastructure projects.
The cornerstone of the economic program of Yudhoyono's presidency is to reduce unemployment. As economic growth continued to be strong until 2008, the unemployment rate also fell. After unemployment reached 11.2 percent in 2005, it started to decline and fell to 8.4 percent in 2008. The growing economy provided more employment than the growth of the working age population.
Even after the economy was hit by the financial crisis in early 2009, employment was still growing, even though most of the growth came from informal sectors and low-paying trade and service sectors. The mass lay-offs feared at the start of the crisis did not materialize. The concern that Indonesia would experience a "jobless growth", like in other countries, has eased.
The poverty level during SBY first tenure shows a declining trend. After reaching a peak of 17.8 percent in 2006, it declined to 15.4 percent in 2008, the lowest in Indonesian history. Between 2006 and 2008, around 4 million more people were lifted out of poverty. Various programs designed by the government to alleviate poverty were responsible for this decline.
These programs include directly targeted cash transfers, community empowerment programs and, of course, policy that keeps food prices at affordable levels for the poor. The decline in poverty was generally broad-based, as the decline took place both in rural and urban areas, and even in some poor regions.
The decline took place even as food prices jumped 16 percent between April 2006 and April 2007, which means that if there had been no increase in food prices, the decline in poverty would have been greater. Viewed in relation to the eight goals of the Millennium Development Goals (MDGs), poverty alleviation (as measured by the percentage of people living on US$1/day) is one of Indonesian successes.
However it should be noted that large numbers of people are still vulnerable to economic shock that could push them into poverty, because their income levels are still near the poverty line.
Another area where Yudhoyono's economic performance was moderately successful was in rice production. Blessed with favorable weather, rice production was more than enough to feed the Indonesian people. There had even been talk of exporting surplus production. These successes were achieved despite the poor condition of irrigation systems and other agricultural infrastructure all over the country, a result of budget constraints and neglect since the crisis in the 1990s.
During the first two years of Yudhoyono's administration, rice production barely increased, raising concern that Indonesia would face a food crisis in the face of escalating global food prices. After stagnating, rice production escalated in the next two years, at 5 percent per annum, making the overall increase in rice production 3 percent per annum slightly above the rate of population growth. This was made possible because the government managed to expand cultivated areas by 4 percent between 2004-2008.
As economic recovery all over the world looks better than expected, there is a growing optimism that Indonesian economic growth will be higher than previously forecasted. The President's next administration should use this momentum by continuing reforms to ensure higher growth in 2010 and beyond. Speeding up construction of infrastructure, budgetary and regulatory reforms should remain priorities.
The risk for the Indonesian economic recovery will be determined by the sustainability of the recovery in developed countries. If consumer spending in developed countries remains weak, there is a risk that global recovery would not be sustained.
This would reduce demand for Indonesian exports Also, the continuing strength of the rupiah would adversely affect exports. Bank Indonesia should be able to determine at what point the appreciation of the rupiah starts to be detrimental for Indonesian exports.
Otherwise, it is expected that the main driver of Indonesian economic growth is the continuing buoyant consumer demand. The challenge for the government is to devise a right mix of monetary and fiscal policies that would be supportive for higher purchasing power.
The writer is an economist.
