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
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