Budget plan ‘too populist’
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The government’s proposal to raise spending on subsidies in the state budget by 18 percent to Rp 316.097 trillion (US$33.19 billion)next year has prompted concerns from economists who say President Susilo Bambang Yudhoyono’s administration is making a populist move rather than one that would drive sustainable growth.
The rise in subsidies was not offset by a 15 percent increase in infrastructure spending to Rp 193.83 trillion, the latter of which many economists said was not enough.
The government proposed to raise subsidies by about Rp 70 trillion from Rp 268.1 trillion in the 2012 revised state budget. Subsidy expenditures in 2011 stood at Rp 237.2 trillion.
Besides the subsidies, the government also planned to allocate Rp 59.03 trillion for social assistance programs, taking the total amount of welfare-based spending to Rp 375.1 trillion for the 2013 fiscal year, accounting for 22 percent of the total spending.
Bank Mandiri chief economist Destry Damayanti said the government’s budgeting policy for next year raised sustainability concerns.
She said the government’s policy would basically provide more subsidies for the masses to maintain the population’s purchasing power amid the global crisis.
By maintaining purchasing power, the government might be able to reach its 2013 economic growth target of 6.8 percent using the country’s massive domestic consumption, Destry continued.
Goldman Sachs Group Inc. analysts Mark Tan and Hui Ying Chan said in a report quoted by Bloomberg that “robust domestic demand” would become a buffer against Indonesia’s slowing exports.
However, Destry warned that achieving the target by heavily depending on domestic consumption might pose a danger to Indonesia’s fiscal health in the long run.
“The budget allocation for welfare programs reaches nearly 25 percent of the state budget. This is huge and the programs could only trigger growth for a short time. If we keep on doing this, our budget will not sustain fiscal pressure from the subsidy side,” she said.
“This current [proposal] shows that the government has become too populist,” she said.
Economists said that the government needed to increase infrastructure spending to create jobs, improve the investment climate and in turn push economic growth.
Destry said that Indonesia was in danger of falling into the same fiscal trap that had snared European countries in crisis — if the heavy subsidy policy was continued.
The government plans to increase fuel subsidies by 35 percent to Rp 274.74 trillion and electricity subsidies by 24.5 percent to Rp 80.93 trillion.
Coordinating Economic Minister Hatta Rajasa said in a press conference on Friday the government had no plan to raise subsidized fuel prices and would accelerate fuel to gas conversion.
Finance Minister Agus Martowardojo said that to reduce subsidy pressures, electricity tariffs would gradually rise in each quarter, which would start in January next year.
According to Indonesian Employers Association (Apindo) chairman Sofjan Wanandi, political motives might be the main factor that triggers the government to take on populist policy measures next year.
“The government is providing a large sum of subsidies to gain momentum for the 2014 general elections,” Sofjan said.
“I believe the government must stop providing huge amounts of subsidies just for the sake of political popularity. Doing so is useless and provides no benefit at all for the nation,” he added.
In his budget proposal speech on Thursday evening, Yudhoyono said seven ministries would receive more than Rp 20 trillion each.
“The seven ministries and institutions are the Defense Ministry with a budget allocation of Rp 77.7 trillion, the Public Works Ministry with Rp 69.1 trillion, the Education and Culture Ministry with Rp 66 trillion, the National Police with Rp 43.4 trillion, the Religious Affairs Ministry with Rp 41.7 trillion, the Transportation Ministry with Rp 31.4 trillion and the Health Ministry with Rp 31.2 trillion,” Yudho-yono said before the House of Representatives.
Yudhoyono said that the special allocation to the ministries would help the country achieve its economic goals in 2013.
“We must increase capital spending for infrastructure development that will support domestic connectivity and energy and food independence,” he said.