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Jakarta Post
The Jakarta Post
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100 days of new govt: A decidedly mixed bag

  • Kahlil Rowter

    The Jakarta Post

Jakarta | Fri, January 30, 2015 | 03:30 pm

Although President Joko '€œJokowi'€ Widodo did not make any promises about the performance of his government during the first 100 days of his rule, three months are enough time to get an early feel of the Jokowi government. Jokowi came in with so popular a mandate that he was bound to disappoint some supporters, even early on. This is even more the case since his government has been scrutinized daily by social media and others hoping for quick action, after the last few years of risk-averse Susilo Bambang Yudhoyono'€™s administration.

What we have seen is a mixed bag of good intentions, bad personnel choices and haphazard policies.

The first disappointment was the less than ideal Cabinet lineup. The actual Cabinet was a far cry from what the media and many experts were predicting, with more than half of positions going to political creditors. Fortunately, several key economic posts, like the Office of the Coordinating Economic Minister and the Finance, Public Works and Transportation Ministries went to credible figures. Less-known figures got appointed to the industry, trade and manpower portfolios.

The critical law-enforcement side of the government looks especially bad, with the positions of justice minister and then attorney general being assigned to politicians. The most shocking of all was when Jokowi named a senior general, who had earlier been flagged by the Corruption Eradication Commission (KPK) for his questionable bank accounts, the sole candidate for the position of National Police chief.

Jokowi was plunged into a complex dilemma when the KPK named the candidate a corruption suspect only one day after he was submitted to the House of Representatives for confirmation.

Giving out appointments in return for political support is common, but it should not impair the credibility of the law-enforcement apparatus. This is the weakest part of the government. And, ironically, Jokowi was voted to the presidency for his impeccable integrity and strong commitment to fighting corruption.

The first major policy Jokowi announced upon entering office was reducing fuel subsidies. In this context Indonesia had a few companions, like India and Malaysia, taking advantage of low global oil prices to lower subsidies.

The real test will be to make sure that fuel subsidies will not be given again when oil prices rise in the future.

But how the policy was implemented showed an emerging pattern. First subsidies were cut in November by raising fuel prices, then prices were reduced twice this month alone. This step showed how the government hastily took measures without first getting good advice regarding the volatility of oil prices.

The first price hike could be considered as Jokowi fulfilling his campaign promise to control fuel subsidies and showing this government has a backbone. And subsequent price cuts showed its sympathy towards those affected by higher prices.

However, the reality is that food, transportation and many other prices that went up with the first fuel price hike did not go down when the fuel prices were lowered, despite the government'€™s instruction that prices should go down along with the lowered fuel prices.

The government then acted to lower the price ceiling for cement produced by state companies. Then it asked transportation companies to lower their tariffs. But the government is not stopping there.

The trade minister recently issued reference prices for basic necessities such as rice, cooking oil and other basic needs, warning that if these prices did not fall to the set reference levels, the President would issue a decree to make it happen.

This amounts to micromanaging the goods markets in ways that even the Soeharto government did sparingly and mainly through the State Logistics Agency (Bulog). Directly controlling prices is a bad idea.

First, the government does not know or cannot adjust prices fast enough to catch up with the changing market dynamics. Second, price controls usually end up creating scarcity in certain areas and oversupply in others, and black markets have a way of appearing as if by magic.

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"The new budget is quite ambitious and there are high risks from falling GDP growth and oil prices.

In its first few days in office, the administration shocked the world by stating its intention to sink vessels caught illegally fishing in Indonesian waters, a statement that it began to enact a few weeks later. Despite massive illegal fishing in our seas, blowing up the vessels caught poaching is a harsh move. The President then ordered the execution of convicts already sentenced to death, especially those engaged in drug trafficking.

Although some might agree with these harsh moves, the reality is that illegal shipping will not go away because a few ships were sunk, or that drug-dealing will disappear after the execution of a few convicts. The problems have deeper roots and require much more comprehensive solutions '€” which we have yet to hear. To eradicate illegal fishing we will need a much bigger fleet of patrolling boats. And drug-dealing requires a strong drug-law enforcement agency much like the KPK (in corruption) '€” from which important lessons can be drawn.

One major achievement of the new government was the decrease of Rp 182 trillion (1.5 percent of GDP) in fuel subsides, with the savings allocated mostly to the development of infrastructure in public works and transportation.

In addition, several state-owned companies (SOEs) will get substantial capital injections. One SOE in particular, PT SMI (an infrastructure advisory and financing arm of the Finance Ministry), will get a whopping Rp 20 trillion in new capital. This move shows a paradigm shift from using SOEs as cash cows for the budget to using them as the agents of development. The total Rp 47 trillion ($3.7 billion) allocated for SOE capital injection could be leveraged two to four times, resulting in over $15 billion in investment.

However, lower global oil prices also reduced the government'€™s natural-resource income by close to Rp 30 trillion. To make up for this loss, the government has an ambitious program to raise revenue from income and value added taxes by over Rp 104 trillion.

The government is also raising its bond issuance by slightly more than Rp 31 trillion. The bottom line is a reduction in the budget deficit to 1.9 percent of GDP from 2.21 as originally planned.

I see two main risks with the budget: GDP growth and lower oil prices. If growth registers at around 5 percent in 2015 (as with the latest consensus forecast) then the tax shortfall could reach Rp 11 trillion. And if oil prices fall further to an average $40 per barrel (according to the more pessimistic outlook), then tax revenues will fall by around Rp 96 trillion.

Therefore, the Finance Ministry must watch the incoming cash flows very carefully and keep its scissors sharp to cut spending if the need arises.

In the first 100 days in office, we have seen a mixed bag of achievements. First personnel selection, except in certain cases, appears as political payback, even in critical law-enforcement positions.

Second there is a rapid-fire succession of policies, which on a net basis may have had a negative impact. At the very least some of these policies have reduced the government'€™s own degree of freedom to choose alternatives in the future.

Third, the new budget is quite ambitious and there are higher risks from further lower GDP growth and oil prices.

To avoid policy shocks, my advice would be for the government to unveil a long-term game plan, one that is realistic, thought-out and contains easy-to-measure milestones. This should be sold to the people to get popular buy-in. This does not mean there is no room for discretion. But remember that credibility must be earned by making it expensive for the decision-maker to renege on his words.

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The writer is a lecturer at the School of Economics and Business, University of Indonesia

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