SBY Urged to Cut Subsides, Boost Infrastructure Funds

By webadmin on 08:45 am Aug 28, 2012
Category Archive

Muhamad Al Azhari & Ezra Sihite

With President Susilo Bambang Yudhoyono’s time in office ending in 2014, politicians and industry figures say the retired army general should radically alter his administration’s policy on energy subsidies if he wants to leave a significant legacy to the nation.

Didik Junaedi Rachbini, a politician from the National Mandate Party (PAN), slammed the government’s push to allow the state budget to raise energy subsidy spending next year and suggested more money should go toward other sectors, specifically infrastructure.

“The current policy does not reflect an intention to better stimulate the economy,” said Didik, who was a former lawmaker presiding on House of Representatives Commission VI, which oversees energy policy.

In the draft budget for 2013, the government has allocated Rp 274.7 trillion ($29 billion) for energy subsidies, 18 percent of the total budgeted spending.

The energy bill, which covers fuel and electricity, will be more than the Rp 193.8 trillion in spending for capital goods and infrastructure development next year. Even the rate of increases on 2012 will be higher — 36 percent for subsidies and 15 percent for capital goods.

Indonesia’s poor infrastructure, including poorly maintained roads, has hampered economic growth and caused logistics and distribution costs to soar. The public also suffers from long, frustrating traffic jams in big cities including Jakarta as the number of cars has outpaced the development of roads.

Didik also criticized the government’s preference to increase spending on civil servants’ pay amid widespread corruption.

“Our civil servants have a reputation of having bad attitudes, poor work performance and service. Now the government wants to pour more money into them? Well, I have to say, bureaucratic reform has failed,” he said.

In the 2013 draft budget submitted to the House on Aug. 16, the government plans to allocate Rp 241.1 trillion for civil servant costs — including salaries, allowances, overtime, pensions and acquiring new recruits.

The amount is 14 percent higher than the Rp 212.3 trillion set aside for this year, and it makes up 16 percent of the total 2013 budget.

“This just does not make any sense and is a waste of money,” said Didik, who was a running mate of former People’s Consultative Assembly (MPR) Speaker Hidayat Nur Wahid for the Jakarta governor’s race in July.

Suryo Bambang Sulisto, the chairman of the Indonesian Chamber of Commerce and Industry (Kadin), an influential private lobby group, said on Aug. 15 that the country needed to remove energy subsidies that have curbed efforts to spur economic growth.

He said after 67 years of independence the nation is not yet free from fuel subsidies, and strong political will is the key.

Highlighting the need for more roads and facilities, the Jakarta Convention Center will from today host the Indonesia International Infrastructure Conference and Exhibition 2012 over a three-day period to discuss the government’s plans to expand the economy through infrastructure.

Uchok Sky Khadafi, the coordinator for the Indonesian Forum for Budget Transparency (Fitra), expressed skepticism toward the government’s efforts to cut the energy subsidy. Uchok said Yudhoyono’s administration will not slash the energy subsidy next year on fear that that may spark large public protests.

“What will happen is demonstrations, as it [cutting the energy subsidy] will be perceived as unfairness. The poor will see this as removal of their rights [to buy cheap fuel],” he said.

Bureaucratic hurdles that constrain permits issuance was particularly highlighted in the Doing Business 2012 report by the International Finance Corporation, the investment arm of the World Bank. Indonesia slipped three places to 129th out of 183 economies.

Lawmaker Harry Azhar Azis, the acting chairman of House Commission IX, which oversees financial affairs, said Indonesia needs to ramp up its spending on capital goods and infrastructure development to at least 5 percent of the nation’s projected gross domestic product, which is targeted at Rp 9,387 trillion next year.

“We don’t disagree with giving subsidies to the poor and those who need them, but the current practice is the government subsidizing the rich,” he said.

The House will hold public hearings with the government to review the draft 2013 budget. Political conflict is likely, similar to that in late March, when lawmakers rejected the government’s plan to raise the fuel price to ease the subsidy burden for this year.

Harry said the draft budget will be brought to hearings starting next week. Lawmakers have been given an Oct. 23 deadline to decide whether to approve the budget.

Purbaya Yudhi Sadewa, the chief economist at Danareksa Research Institute, which conducts a monthly survey on consumer sentiment, said there was danger in immediately cutting the subsidy.

“There could be a drastic slowdown in economic growth if the larger funds allocated to infrastructure are not well spent,” he said.

The government has a reputation as a slow spender of its budget because it is typically constrained by bureaucracy, graft and land acquisition issues.