07:50
Tieng Anh Vui
INDONESIA’S president, Joko Widodo, began the new year knowing that he will now have trillions of fresh rupiah to spend that his predecessors have lacked. Having trimmed petrol subsidies in November, Mr Joko, who is universally known as Jokowi, scrapped them entirely from January 1st. Small subsidies (1,000 rupiah, or eight cents, per litre) will remain in place for diesel, used for public transport and by the country’s millions of fishermen. But for the first time in decades, the price of petrol will reflect global market prices.
The move was not without political risk. Furious protests broke out when Jokowi’s predecessor as president, Susilo Bambang Yudhoyono, wanted to raise fuel prices. Smaller protests greeted Jokowi’s November move. But this time, there was not even a whimper. For that, thank falling global oil prices: even without subsidy, a litre of petrol now costs 7,600 rupiah, down from a subsidised 8,500 rupiah in December. Fortune has favoured Jokowi.
The government now has markedly more fiscal room. Depending on oil prices and the exchange rate, energy subsidies have often accounted for a fifth of total government spending, more than spending on infrastructure and social-welfare programmes combined. And the benefits typically flowed not to the poor, which was their supposed justification, but to Indonesia’s car-owning middle classes.
The country’s finance minister, Bambang Brodjonegoro, reckons the savings will be in the order of 200 trillion rupiah, or nearly $16 billion. Some of the cash is already spoken for. Anton Gunawan, an economist at the University of Indonesia, estimates that delayed payments of last year’s subsidies, cash transfers to the poor and near-poor to make up for the subsidy cuts, and money owed to Indonesia’s villages under a law enacted by Mr Yudhoyono will eat up as much as 90 trillion rupiah.
But that still leaves a handsome sum. Precisely how Jokowi and his administration plan to spend it will become apparent when the government submits a revised budget to parliament later this month. But as Taimur Baig, Deutsche Bank’s chief Asia economist, notes, the president’s broad aims are already clear: he wants to boost spending on health, education and infrastructure, and he wants to bring down the budget deficit from under 3% to under 2% of GDP.
Jokowi has already launched three promised programmes, his Indonesia Health Card, Indonesia Smart Card and Family Welfare Fund. They provide free health insurance to Indonesia’s poor, guarantee 12 years of free schooling as well as tertiary education to students accepted to university, and provide cash transfers to poor Indonesians to help with the phasing-out of subsidies (see article). And although he has been courting foreign investors for much-needed infrastructure upgrades, some of Indonesia’s infrastructure needs, such as port and rail construction in remote areas, will have scant commercial appeal and will need government funding.
The president has also been clear about his desire to see Indonesia return to growth of 7% a year, a rate that it has not reached since the mid-1990s. That was when commodity prices were high and China was booming. Now commodities have collapsed and Chinese growth has slowed. The World Bank forecasts Indonesian growth of 5.2% this year. Mr Baig forecasts growth of no more than 5%.
In the longer term, Indonesia’s prospects are brighter. Better infrastructure should lower transport costs and attract more business investment—including from foreigners. With a healthier and better-educated workforce, Indonesia would rely less on extractive industries. Instead, more people could find work in services and higher-value manufacturing—semiconductors and smartphones rather than T-shirts and trainers. And having got fuel subsidies out of the way, Jokowi can move on to thornier problems of streamlining a tangled tax regime, regulatory apparatus and government bureaucracy. His year has got off to a good start.
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