The Presidential candidates for election who were struggling to win Presidency as well as their respective supporter team must observe development of Indonesia’s macro economy. Understandable because many economist predicted that fiscal disaster would stand on the way of the next Government.
By the time national economy was in need of fiscal stimulus, the Government and house axed ministrial budget to the amount of Rp 43.05 trillion, due to increase subsidy for energy from Rp 282.1 trillion Rp 350.31 trillion. In APBN-P State Budget 2014 subsidy for energy was set at Rp 350.31 trillion, an increase of 24% against APBN 2014 amounting to Rp 282.1 trillion. The subsidy consisted of subsidy for oil, LPG and bio fuel amounting to Rp 246.49 trillion and subsidy for electricity Rp 103.81 trillion.
Meanwhile ministrial expenditure was axed by Rp43.05 trillion, although as a whole state expenditure increased. State’s expenditure was increased from Rp 1,842.5 trillion to become Rp 1,876.87 trillion, consisting of Central Governments spending Rp 1,280.36 trillion and transfer to the regions Rp 596.50 trillion.
However, state’s income was posted at Rp1,635.38 trillion or down against APBN 2014 at Rp 1,667.1 trillion. The result was that deficit in state budget expanded to Rp 241.49 trillion against GDP against the previous Rp 175.4 trillion [1.7%]. The APBN-P Budget was passed at Parliament’s Plenary Meeting together with Government last week [18/6].
The Government and House had agreed on some basic assumptions in RAPBN-P State Budget 2014. Economic growth was set at 5.5% in 2014, inflation target 5.3%, rupiah exchange rate value Rp 11,600 per USD and SPN interest 6% for 3 months. Indonesia’s Crude Oil Price was set at USD 105 per barrel, oil lifting on the average 818,000 barrel per day and gas lifting 1,224 barrel on the average per day.
Based on the macro indicators and the measures to be taken, the following were breakdown of the points agreed upon in APBN-P State Budget 2014:
Firstly state’s income amounting to Rp 1,635.37 trillion consisting of domestic income Rp 1,633.05 trillion and received grant Rp 2.32 trillion. Income-from-tax Rp 1,246.10 and state’s non-tax income Rp 386.94 trillion.
Secondly, state’s expenditure was agreed at Rp 2,876.87 consisting of Central Government Rp 1,280.36 trillion ad transfer to the region Rp 596.50 trillion. State’s expenditure was agreed at Rp 2,876.87 trillion consisting of Central Government’s spending Rp 1,280.36 trillion and transfer to the region Rp 596.50 trillion. Central Government’s spending was allocated for subsidy Rp 403.05 trillion. Energy subsidy came to Rp 350.31 trillion consisting of subsidy for oil, LPG and bio fuel Rp 246.49 and electricity Rp 103.81 trillion.
Fourthly, Axing of budget from Rp 100 trillion in APBN-P 2014 to become Rp 43.25 trillion in APBN-P 2014 or lower by 56%.
In fact passing of the State Budget was a challenging and at the same time putting the next Government a hostage after the Presidential election on July 9 next. The heavy burden was nothing but subsidy for oil fuel. As known President SBY’s administration never put an end to deficit problem once and for all even till end of his office.
The result budget for subsidy this year increased drastically from Rp 282.1 to become Rp 350.31 trillion. Of that amount Rp 50 trillion was included in 2015 budget as carry over. To make it easy, the Government seemed to be “hedging” the subsidy fund. Now the Government argued that the fiscal burden of this year was already too heavy so they had to “take a little” from the budget of 2015. Subsidy for energy kept increasing on account of weakening Rupiah value.
Only trouble was that in line with upjump of subsidy fund, income from tax was getting hard to obtain. APBN-P of 2014 assessed income from tax at Rp 1,246.1 trillion, down against APBN target 2014 which set it at Rp 208.3 trillion. The Budgeting Board House [Banggar] agreed slashing of Government’s budget in Ministries and increase of subsidy for oil and electricity.
In this case the quota for subsidized oil came to 46 million kilolitre and subsidy for electricity came to Rp 103 trillion. Hence, total energy subsidy for 2014 came to Rp 453.3 trillion and non-energy subsidy was Rp 52.7 trillion. Of the 2014 budget posture, just because of extravagance, axing of budget by up to Rp 43 trillion looked like a short cut attempt.
To cover the ever widening deficit, domestic debt was to be jacked up. The Government would avoid overseas debt as such was unpopular act. Seeking for new debt would be increased to around Rp 66 trillion, against the previous Rp 175.5 trillion.
Clearly effort of the present Government to control budget deficit by axing budget and carry over of energy subsidizing would burden the next Government. In the end there would be less room for the new Government for fiscal maneuvering. The conclusion was that carry over of budget indicated that the present Government had no courage to solve the energy subsidy problem. Probably there was no much that the next Government could do.
Feeling unpleasant with the accusation, the Minister of Finance Chatib Basri cast aside accusation that the present budget policy but will burden to the next Government. Finance Minister Basri claimed that the present Government wished to let the next Government to propose a parameter as underlying reference for changing energy subsidy budget as well as for price of oil and Rupiah exchange rate value.
The problem was that Minister Chatib regretted House for cancelling the parameter. The result was that in discussing the APBN 2014 the Government was unable to propose additional amount of the ceiling set. In that case double deficit in Government budget and Indonesia’s current transaction would be out of control.
Prohibition of export of raw mineral ore, low export of coal and CPO, and slump in oil low production output, was feared to worsen Indonesia’s deficit. Looks like Government of RI blew the “trumpet of victory” too soon when Indonesia’s economic growth reached 6.5% in 2012. And yet at that time the posture of Indonesia’s GDP still hid big problem, i.e. high inflation and deficit in current transaction.
It was not surprising that a certain foreign rating agency dared to revise deficit current transaction to become 3% of GDP against the previous 2.8% - whilst deficit in Government budget was increased to 2.5% against the previous 2%. Estimate of annual GDP growth was also lowered to 5.2% against the previous.
Widening deficit in fiscal and current transaction would put Indonesia in the risky position of capital outflow and further financial pressure. Deficit in current transaction which had been happening since end of 2011, was feared to bring heavier pressure due several factors.
The main factor was Government’s step which in January last prohibited export of mineral ore in the effort to promote development of mineral processing at home. As result of the regulations, export of nickel ores and copper was instantly stopped, and so was export of bauxite which dropped.
Meanwhile coal as the biggest export commodity was also having downturn, not just in volume but also in price in International market. On the other hand, export of coal was rated as un prospective with restriction of production done in pricing game.
What make things worse, export of CPO as premium export commodity was having the problem of low demand abroad. What’s more, Indonesia’s production of crude oil tend to be lower than estimated in Government budget to import was inevitable.
Weakening of current transaction was more on account of structural weakness against cycle factor, i.e. intensive technology not developing well resulting in dependency on import and increased reliance on export of commodity due to export of manufacturing product and high subsidy for oil resulting in increase of crude oil importing and domestic consumption.
In terms of budget, the Government had the risk of breaking the oil subsidy target, which might worsen deficit. Oil subsidy was the highest budget expenditure sector, way above budget for health, education or infra structure building. So the highest grievances in Indonesia was poor fiscal condition as manifestation of high oil subsidy which triggered exploding demand while domestic oil production kept shrinking.
For years, the Government of RI was rated as underestimating the upblowing oil subsidy and recently again proposed to revise target of oil subsidy to Rp 285 trillion against the previous target of Rp 210 trillion. Even some foreign observers felt that the target would be broken to more than Rp 300 trillion: and the estimate would be proven when the revised energy subsidy, including oil, broke the Rp 350 trillion limit.
From the above picture it was apparent that the task of the next Government was to secure fiscal health to be productive enough to support development. One of the thinkable way out was to lower energy subsidy figure especially oil so productiveness of budget could be maximized to jack up inclusive and sustainable economic growth. (SS)
Business News - June 25, 2014