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EDITORIAL: Boring, yet realistic budget
We don’t see within the budget allocations any short-sighted populist programs to gain voter support.
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President Joko "Jokowi" Widodo (second left) and Vice President Jusuf Kalla (second right) pose for photograph with leaders of the House of Representatives and the Regional Representatives Council after attending the House plenary meeting in Jakarta on Aug. 16. (Antara/Akbar Nugroho Gumay)
P
resident Joko Widodo’s spending proposal for 2018 is a boring, yet realistic budget. The market will be comfortable with the assumptions used for the key elements of the budget proposal and welcome the strong commitment of the government to maintain prudent fiscal management and continue top priority spending on infrastructure development, poverty alleviation and income equity enhancement.
The conservative estimates for revenues, economic growth, inflation, interest rate, oil price and production and rupiah exchange rate amid the global economic uncertainty would mitigate the downside risks of having to abruptly amend the spending plan mid-way in the 2018 fiscal year.
Yet more encouraging is that we don’t see within the budget allocations any short-sighted populist programs to gain voter support, even though political and logistics preparations for the April 2019 direct elections of the president, House of Representative members and regional representatives will peak in the second half of 2018. The fiscal deficit will still be kept way below the legal ceiling of 3 percent and the debt ratio to gross domestic product (GDP) will be maintained below the maximum 30 percent.
The accelerated programs of asset (land) redistribution to landless farmers, the expediting of land titling for the poor, easier credits for micro and small businesses, and the expansion of vocational schools and training are by no means narrow-minded populist programs but are instead crucial for bridging the wide inequality in asset ownership and income distribution.
Indonesia’s Gini coefficient ratio, which measures income distribution, currently estimated at 0.393, is still below one that reflects perfect income inequality. But most studies and surveys have revealed strong perception among the public that development so far has primarily benefitted the richest 20 percent and left behind the other 80 percent of the 260 million people because the income and assets of the rich have risen at a much higher rate than that of the low, fixed-income majority. Such negative perception, if not adequately and quickly addressed, could threaten the sustainability of growth.
The continued emphasis of government investment in infrastructure development, especially in the eastern region covering Kalimantan, Sulawesi, Maluku, Papua and Nusa Tenggara is strategic in nature because this program will improve connectivity between these islands and Java and Sumatra, which together now contribute the bulk of the country’s growth.
Connectivity is key. Even though we have succeeded in building a unified political and national identity, we never have an integrated domestic economy and our domestic market has remained fragmented because of the poor connectivity between the islands within the world’s largest archipelagic country.
The accelerated physical infrastructure development will significantly reduce logistics costs, while the 15 economic reform packages and deregulatory measures the government launched over the past two years will cut transaction costs, thereby strengthening overall economic competitiveness.
So all in all we are glad to note that the 2018 state budget will embody all the fiscal operations, but take into account all financial implications to be made against the background of stringent spending and revenue constraints and in competition with other demands.
