President Susilo Bambang Yudhoyono has effectively handed a poisoned chalice to his successor president-elect Joko “Jokowi” Widodo as the former backed off from implementing much-needed fiscal and energy reforms in his final budget.
Spending on fuel subsidies will rise by an eye-watering Rp 44.6 trillion (US$3.82 billion) to Rp 291.1 trillion, a carryover from this year’s spending, according to the 2015 state budget note presented by Yudhoyono to lawmakers on Thursday.
While acknowledging that the fuel subsidies were poorly targeted, as they are disproportionately enjoyed by the rich, Yudhoyono argued that he encountered “not a little political resistance” when he previously cut the subsidy and raised fuel prices.
“The budgeting policy faces the predicament of political acceptance of sensitive and unpopular moves, such as the reallocation of fuel and electricity subsidies to poorer citizens,” Yudhoyono said.
The 2015 state budget “assumes no adjustment in fuel prices, which will be the full responsibility of the new government”, Finance Minister Chatib Basri explained.
Coordinating Economic Minister Chairul Tanjung referred to the state budget as “business as usual” as the current administration would not be pushing for strategic programs.
From the total central government spending of Rp 1,379 trillion in next year’s proposed budget, at least 31.5 percent will be spent on subsidies alone, which includes fuel, electricity and non-energy subsidies, while 11 percent will be allocated to debt payments.
Funds for transfers to regions, which have been frequently criticized for a lack of supervision and being prone to corruption by regional leaders, topped a record high of Rp 631 trillion, or 31 percent of the total state budget of Rp 2,019 trillion.
The budget means that Jokowi will not have sufficient fiscal space for productive, growth-generating spending, hindering his ambition to post 7 percent economic growth.
The fiscal deficit — the gap between revenue and spending — will be 2.3 percent of gross domestic product (GDP). By law the deficit must not breach 3 percent of GDP.
The proposed 2015 budget assumes annual economic growth of 5.6 percent, inflation at 4.4 percent, a rupiah exchange rate of 11,900 per US dollar and oil costing $105 per barrel with 845,000 barrels lifted per day.
Given the limited room for reform, Jokowi acknowledged that his campaign pledges on development programs might not be wholly accommodated in the budget currently being deliberated by lawmakers.
Jokowi said he planned to talk to Yudhoyono later this month to discuss the budget in order for him to be able to slip in reforms before the House of Representatives passed the budget at the end of September.
Yudhoyono’s administration is set to leave office on Oct. 20 while the term for the current legislators will end on Oct. 1. “The priority is to get my programs on the basic sectors, such as education, health care, fisheries and agriculture, into the 2015 state budget,” Jokowi said on Thursday.
“We will try our best to include the programs in the budget. If we fail to do so, we will revise it immediately,” he said, adding that he would reject any back-room deals with Yudhoyono in exchange for including his reforms in the budget deliberation.
Andi Widjajanto, a member of Jokowi’s transition team, said that revision of the budget could begin on Jan. 2, 2015, the first day the budget comes into effect.
“Jokowi’s pro-people and reform programs could not be accommodated in the 2015 state budget as it was drafted by Yudhoyono’s government and is being deliberated by the current legislators,” he said.
Andi said the transition team’s planned meetings with the current administration would focus on creating “sufficient and realistic” fiscal space in the budget to provide leeway for Jokowi’s agenda.
“We don’t have sufficient time to scrutinize all of the thousands of items in the draft state budget. Thus, we will only focus on dealing with the macro factors to ensure that the budget is fiscally realistic and that we will not be trapped by overly optimistic assumptions,” Andi said.
He added that Jokowi’s team had also been simulating several economic scenarios involving factors such as deficits, economic growth, tax ratios and the rupiah exchange rate.
“The simulations are aimed at preventing Jokowi getting shocks if the real economic situation turns out not to be as projected,” Andi said, adding that the team had also prepared alternative sources to finance Jokowi’s programs should the budget fail to provide for them.
Ina Parlina also contributed to the story
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