President Susilo Bambang Yu-dhoyono says that maintaining people’s purchasing power during an economic crisis would be the best policy as opposed to adopting austerity measures as a remedy.
“This strategy is called the ‘keep buying strategy’. During crisis, it is important for us to ensure that everyone will not stop buying products and services for their needs,” Yudhoyono said during his speech at a seminar held by the National Economic Committee (KEN) at the Ritz Carlton in Jakarta on Tuesday.
Yudhoyono said that it was important for the public to continuously consume products and services during crisis because this was the only way for the economy to continue to thrive.
“If people stop buying, then the companies that produce the goods and services will collapse and go into bankruptcy. By continuously consuming goods and services, we will ensure the livelihood of companies and will be able to maintain employment rates,” Yudhoyono said.
The President said that the government was even willing to sacrifice its fiscal posture to provide subsidies for people who were too poor to maintain their purchasing power during times of crisis.
“If the economy is in crisis, the government is ready to sacrifice its interest for the people. The state might lose some potential income, the fiscal posture might not look pretty, but it will be okay as long as the people are able to continuously buy,” he said.
One of the policies that the government recently made to maintain purchasing power was the move to increase the non-taxable income (PTKP) rate. By increasing the annual PTKP to Rp 24.3 million (US$2,524) from Rp 15.8 million, the state might lose Rp 13.3 trillion in tax income per year, but domestic consumption will increase by 0.08 percent, according to the Finance Ministry’s fiscal policy agency’s calculation.
With around 240 million residents, Indonesia’s economy largely depends on domestic consumption to spur growth, which has been growing at a steady rate of at least 6 percent during the current global slowdown.
Based on the latest data from the Central Statistics Agency (BPS), domestic consumption contributed 54.79 percent of the country’s gross domestic products (GDP), which stood at Rp 2,122.8 trillion during the third quarter of 2012.
University of Indonesia economist Nina Sapti said that Yudhoyono’s strategy to focus on maintaining purchasing power to survive the current crisis was acceptable, but it needed to be enhanced with better subsidy spending policies.
Nina said that the current subsidy policies would only benefit the middle and upper classes, not the lower class, whose segments were supposedly the ones that needed the state’s protection the most during crisis.
“We need the state to provide allowance schemes for those who are poor and unemployed so that they can continue to consume their basic needs. We do not have that kind of scheme right now. What we have is massive spending on energy subsidies that is enjoyed mostly by the rich,” Nina said.
The amount set aside for energy subsidies in the 2013 state budget (APBN) law totals Rp 274.7 trillion, of which Rp 193.8 trillion will go to fuel subsidies and Rp 44.96 trillion will subsidize electricity costs. Meanwhile, Rp 42.5 trillion of the non-energy subsidy funding was allocated for fertilizer and public services.