Tuesday, 1 July 2014


By logic, Rupiah depreciation was on account of unhealthy APBN state budget's posture, among others due to allocation for energy subsidy amount­ing to Rp392 trillion.

In that amount, around Rp210 trillion was al­located for energy subsidy especially oil. As oil con­sumption increased amidst pressures on Rupiah, the Government planned to increase budget for oil sub­sidy to around Rp280 trillion.

Not just that because electricity consump­tion also increased, subsidy for electricity was also increased to Rp105 trillion against the previous Rp 79 trillion. If electricity tariff was not increased to finance fuel for generators, PT PLN might not be able to operate to the Maximum.

The consequences was electricity blackout in some locations. So the issue of energy subsidy should be one of the strategic agenda for the future president to solve problems elegantly.

Whoever the elected President would be, they would have to face complex problem. National eco­nomic growth was predicted to slowdown this year, while the financial burden turned heavier and heavier. All because of swelling energy subsidy and overseas debt.

For energy subsidy. The Government must dare to take sound measures to prevent budget break­down because use of subsidized oil was predicted to exceed the given quota. The effort to reduce oil consumption would not be effective because it would disturb the process of logistics distribution with all the negative effect on economy.

The Government must have the courage to eliminate subsidy for oil. In the Asean region, Indo­nesia was the only country that give energy sub­sidy which threaten the state budget. Data of the Ministry of Energy and Mineral Resources [ESOM] had it that in 2013 last, price of oil in Asean states were Singapore Rp15.695. Vietnam Rp14,553, Cambodia Rp13,298 the Philippines Rp12,147, Thailand Rp12,453, Laos Rp13,396 and Myanmar Rp10,340.

Hence, the most effective way to reduce oil consumption was to increase price of oil with the consequences lifting subsidy for private cars who consisted 93% of total users. To ease people's bur­den, price could be increased by Rp500 - Rp1,000 gradually every 6 months. In 3 to 4 years, oil subsidy would no longer ne necessary.

However, the policy to increase oil price must be accompanied by betterment of transportation ser­vice for the people. This was to encourage the people to change to public transportation which was more comfortable, safer, and cheaper. The public would gladly change, moreover if the tariff was subsidized. Moreover public transportation could access residen­tial areas.

Accumulatively the total amount of subsidy for the energy sector touched Rp500 trillion. The Government was expected to be more focused in dis­secting the matter, because subsidy of that amount could trigger anxiety. The point was that so far the Parliament still had not heard of Government's work­ing scheme which was evidently effective without burdening the people. If the present Government could not do it, the next Government could. The Budgetary Meering of Parliament last week [3/6] dissected subsidy for the energy sector which had swollen to Rp400 trillion, and yet the bud­get for it was only Rp292 trillion till end of 2014. Budget for subsidy in RAPBN-P 2014 rose steeply from the initial Rp74.3 trillion. The budget for subsidy rose because Rupiah value weakened while oil lifting target was not met.

On the other hand, state's revenues could not cover up oil subsidy expenses which kept increasing each year. The Ministry of Finance Chatib Basri ad­mitted, oil became a crucial problem. Moreover, tim­ing was a hindrance because in July there would be Presidential election.

However, Finance Minister Chatib remarked, the option for realistic policy was politically in terms of volume, i.e. control of oil consumption. The Gov­ernment was aware that increased consumption of oil boiled down to swelling subsidy fund. Nearly every year the problem of oil always emerged but sub­merged again without solution.

This year, the oil subsidy issue once again heightened. This year alone oil subsidy was estimated to soar up from Rp210 trillion to Rp285 trillion. Such was because consumption of subsidized oil might soar up to 50 million kl. higher than the quota of 48 million KI allowed by the Government.

Not just that, projected subsidy for electric­ity soared up from Rp 71.4 trillion to Rp 107.1 trillion. Hence total subsidy for oil and electricity was estimated to break through Rp 392 trillion. Chaerul Tanjung admitted that he could not solve this problem even when his office was over, but he was prepar­ing the foundations so the next Government could execute the plan moreover to reduce oil subsidy was a political decision, not economic decision.

A critical opinion was voiced that the Govern­ment had failed to solve the problem by not increas­ing oil price. If the Government was afraid that state bud­get might crumble, supposedly they did not do things which slowed down economic growth because slow economic growth would hindrance taxation process and such was a wrong decision.

And yet' it was obvious that if economy slowed down, tax would diminish and deficit would swell. In the end the blame was put on the size of subsidy. Moreover in the past 6 months absorption of Government budget was poorly realized. On the average, around 10% of annual expenditure remained unabsorbed, which means that the Government's grievances of over budgeting remained irrelevant.

Even today there was Rp 169 trillion of Gov­ernment's fund remained idle at BI. Supposedly APBN fund of that size could energize economy if deposited in BUMN banks as banks were today in need of li­quidity instead of supporting BI's tight money policy.

Speaking of foreign debt, Government or pri­vate, the Government had higher payment due. The latest data showed that foreign debt had reached USD 276.5 Growth of private foreign debt was even bigger and now had exceeded total Government's debt. The position of Government's overseas debt was USD 130.5 billion while private foreign debt was USD 146 billion.

The problem very often feared was the debt was in foreign currency, while the sector's income was in Rupiah. In case of Rupiah depreciation, it would cause burden to debitors to repay the debt; this was known as currency match.
Increasing private debt was stimulated by cheaper cost of fund, beside due to limited capacity of national banks in extending loan. The indicators were more than just dead figures, but they deserved full attention considering the big problem faced.

The ever growing debt without being accom­panied by high economic growth, leads to low pro­ductivity. This resulted in heavier burden, that could even lead to default. Lately word was out there were already difficulty experienced by some companies so it was very likely that they failed to pay their over­seas debt.

Debt ratio was still safe because it was still below 30%, but it might accumulate into high explo­sives when economic growth was low. Gradually DSR would increase; so increase of national productivity was a big challenge ahead considering the so many obstacles, especially problems of infra-structure, low efficiency, corruption, and legal uncertainty.

The present condition signaled some indi­cators that resemble the prologue before economic crisis of 1998. The present socio-political condition was quite vulnerable, especially in regard to rivalry among election candidates which heightened lately. Of course, another crisis was most undesirable.

The public was expecting that the political development would go well and peacefully which would generate negative effect on economy. But more important was that the competing candidates must realize that national economy was not as rosy as pictured. Economic climate could be deceiving as it might hide bubbles ready to explode while it had no direct benefit for most people.

The public was expecting that the next Presi­dent would not adopt budgeting policy adopted by the past Government which did not prioritize effort to promote people's welfare by spending state budget on energy subsidy and paying debt. Without firmness in determining priority scale, APBN could not be ex­pected to fight on the public's side. (SS)

Business News - June 11, 2014

No comments: