T

he economic challenges facing Indonesia are still tremendous. Failure to up the pace of reform may result in a gradual slide in the country'€™s long-term growth potential.

President Susilo Bambang Yudhoyono last week unveiled the draft 2015 state budget. It was indeed not your usual headline. The excess of spending over revenue, or budget deficit, was exceptionally high at an equivalent of 2.3 percent of gross domestic product (GDP). This is compared to an average 1.6 percent in the past few years.

Bear in mind that Indonesia'€™s law on state finance curbs the combined deficit of central and regional governments at 3 percent of GDP. Hence, in relation to next year'€™s draft budget, this means there is very little room to do additional borrowing in the event of any assumption slippages.

In other words, if revenue collection somehow turns out weaker than expected, the government will have little choice but to cut down again on discretionary posts '€” infrastructure spending included.

How we got to this point of strain in the budget can be attributed to the continued swelling of fuel subsidies, which next year is expected to eat up one-fifth of total revenue.

Not surprisingly, the government has been criticized for passing on this growing problem to the incoming administration, although the latter probably also bears some responsibility. After all, the Indonesian Democratic Party of Struggle (PDI-P), the main sponsor of Joko '€œJokowi'€ Widodo'€™s presidential bid, has been opposed to raising fuel prices for the past five years.

Yet, now is not the time for finger-pointing. There is a ticking clock to get policies in order and the cost of procrastinating is high.

We cannot iterate enough that the growth model used by Indonesia in the past 10 years, which relied on strong domestic consumption growth, is no longer sustainable.

With the world entering an era of subsiding commodity prices, Indonesia must reduce its dependence on natural resource exports and find a new competitive advantage. Exports must be diversified into the manufacturing sector to secure foreign exchange revenue sources.

Fortunately, the country has a real opportunity to become a member of the global manufacturing production chain. This is through hosting the flux of Japanese companies, which are currently diversifying their production facilities from China into ASEAN.

But this cannot happen if Indonesia'€™s logistics costs remain among the highest in ASEAN.

At the very least, the country must show that it is serious in addressing the rampant infrastructure bottlenecks.

Unfortunately, after slashing infrastructure spending this year to allow for bloating fuel subsidies, the government laid out a budget that might potentially lead to yet another round of infrastructure cuts next year. The signal being sent on this front is obviously not a positive one.

It is imperative for the new government to assume ownership of this draft budget.

Cooperation during the forthcoming deliberation process must be spawned from the very top: between the incoming president and the outgoing one.

The former should give clear guidance on his plan to tackle the subsidy problem. For example, if a fuel-price hike is called for, at what magnitude? And what will be the size of any incremental social spending that could be used as a safety net?

Budget deliberations in the coming weeks should ideally be able to incorporate strategic input from the incoming president, which would enable him to hit the ground running after inauguration day on Oct. 20.

Suggestions to wait until next year before revising the budget and incorporating new plans are misguided. The country does not have the luxury to wait another month, let alone six, for corrective policies to be implemented.

There needs to be a broad understanding of the high cost incurred if reforms are not immediately implemented. Reducing fuel subsidies is not just about keeping the budget deficit or trade deficit in check. What is really at stake is the continuity of Indonesia'€™s long-term economic growth outlook.

If the use and import of fuel is not tightened, the nation will eventually not have enough foreign currency available to import the capital goods needed to build its factories and infrastructure.

Should we ever get to that stage, the country'€™s long-term growth potential will be significantly impaired. And at the end of the day, it is the living standards of the people that will be impacted, following a structural tightening of employment opportunities and poverty rise.

It is this broader perspective and sense of crisis that needs to be grasped by the new government and the general public.

Not everyone can accept the argument that fuel prices need to be raised due to budget constraints. Only by explaining the long-term consequences of inaction can the painful reforms be better understood by many.