The Jakarta Post
The plenary Cabinet meeting on Tuesday, the first after the April 17 presidential election, discussed basic assumptions and indications for public financial management for the 2020 fiscal year, which is to start in January. However, don’t assume the mistaken opinion that incumbent President Joko “Jokowi” Widodo had usurped the authority of a new government since the final results of the elections are only to be announced next month.
Even though the final results of the presidential election are only to be announced in May, Indonesia’s fiscal system requires the incumbent government to embark on preparations for the 2020 budget, which has to be proposed to the House of Representatives on Aug. 16 for implementation starting in January.
Hence, as Jokowi’s current term ends in October, the Cabinet session was the right time to start the whole political process.
Informing the market early on about the likely direction of fiscal management next year generates strong market confidence in the outlook for the economy because predictability is quite important for efficient and effective implementation of policies and programs. The public sector performs better when there is stability in macro and strategic policy and funding of existing policies, especially in facing global economic uncertainty and a growth slowdown.
After all, a budget system is basically a communication system, conveying signals about behavior, prices, priorities, intentions and commitments. Market confidence will contribute greatly to stimulating investment, which is badly needed to generate the 5.6 percent growth President Jokowi signaled would be the target for 2020, as compared to an estimated 5.3 percent this year, 5.17 percent in 2018 and 5.07 percent in 2017.
While many economists have estimated that 6 percent expansion would still be possible, we do not think that this growth level is realistic, given the country’s physical infrastructure deficit. A more gradual growth would prevent overheating. Moreover, 5.3 to 5.6 percent growth is still respectable compared to the average 5 percent projected for the whole of Asia and the 3.6 percent global growth.
Gradual is also more relevant if the government is really serious about reducing inequality in income distribution and asset ownership. Emphasis on inclusive growth would require the government to spend more on agriculture and rural development.
It was encouraging to learn from Finance Minister Sri Mulyani Indrawati’s statements after the Cabinet meeting that the government will continue the massive development of physical infrastructure, civil service reform and the improvement of the investment climate.
More government spending will generate a virtuous circle within the economy. Suppliers and contractors will use part of the payments from the government to pay workers and will deposit some of their revenues at banks, which in turn will transfer these deposits into loans, thereby injecting liquidity into the financial system.
Human development will also be accelerated with more spending on research and development and vocational training and bigger incentives in the form of double tax deductions from taxable incomes for companies conducting vocational training and apprenticeship programs.