View Point: Presidential
candidates promise, but
where will all the money
come from?
The two presidential-candidate pairs, Joko “Jokowi” Widodo-Jusuf Kalla and Prabowo Subianto-Hatta Rajasa, have revealed their economic platforms, showing the grand designs of their economic management for 2014-2019.
Both the platforms are similar, designed to develop a strong economy based on developing agriculture and manufacturing with a narrowing degree of inequality in income and asset ownership.
Naturally, food, energy, physical infrastructure and education (human capital) are central to their working programs.
But neither pair of candidates has stopped at simply showing their grand designs; they have also stipulated in the documents filed with the General Elections Commission (KPU) a series of concrete steps and measures to implement their programs.
As the designs are similar, so are the action programs, as illustrated by the following examples. Jokowi-Kalla: Improve irrigation networks for 3 million hectares (ha) of rice fields, opening 1 million ha of new rice fields outside Java; build 10 new airports, 10 seaports and 10 industrial estates, as well as 2,000 kilometers of road and 5,000 traditional markets, and offer 12 years of compulsory education.
Prabowo-Hatta: Increase per capita income from the current Rp 35 million (US$2,951) to Rp 60 million in 2019 with annual economic growth of between 7 and 10 percent; create 2 million jobs annually; open 2 million ha of new farmland mainly for food crops; build 3,000 km of new road and 4,000 km of new railway, and replant 77 million ha of damaged forests.
While these action programs are badly needed to improve the economy and set it on a faster growth path, there is still a big question as to where all the money to finance these programs will come from.
The problem is that over the past four years and, most likely, through the next five years, the fixed components of central government spending — personnel expenditure, debt servicing and amortization, energy (fuel and electricity) and fertilizer subsidies and transfers to regional administrations — already use more than 85 percent of the annual state budget.
Hence, only about 10 to 15 percent of the state budget will be available for government investment in infrastructure if the huge amount spent on energy subsidies is not cut down and budget losses due to inefficiency and corruption are not decreased.
Neither candidate said anything meaningful regarding the budgetary system or fiscal management; nor did they refer to the format or structure of the budget they plan to implement if elected.
Jokowi and Kalla, like Prabowo and Hatta, set a target to increase the tax ratio — tax receipts as a percentage of gross domestic product (GDP) — from 12 percent to 16 percent in 2019, but they did not elaborate on how they would achieve it. They also committed themselves to phasing out the fuel subsidies.
However, without any realistic course of action, these programs are little more than wishful thinking or dreams.
The Prabowo-Hatta pair did stipulate in its platform several measures related to the budgetary system, but again they were mostly statements in normative terms, such as a commitment to reform budget management and increase budget spending to Rp 3,400 trillion per year from the current Rp 1,600 trillion.
Doing nothing substantial about the hugely wasteful spending on fuel subsidies would threaten fiscal sustainability and, consequently, increase sovereign risk and government borrowing costs.
Within the coming few weeks before the July 9 election, in order to lend credibility to their promises, both presidential candidates should be more forthcoming about the fiscal management and budgetary system they plan to implement to inform voters of what they can expect.
This is because the state budget process is the only mechanism available for disciplined decision-making. The budget must encompass all the fiscal operations of government and must also force policy decisions with financial implications to be made against a background of hard budgetary constraints and in competition with other demands.
A budgetary system is a communication mechanism, conveying signals about behavior, prices, priorities, intentions and commitments. Budget reforms should take particular account of this characteristic, as effective communication would carry all stakeholders through the reform process.
Fiscal policy must take account of the need to ensure the timely flow of funds to programs and projects. This requires a medium-term approach to the adjustment of budgetary imbalances, program development and evaluation.
In other words, the total amount of money a government spends should be closely aligned with what is affordable over the medium term and, in turn, with the annual budget; such spending should be appropriately allocated to match policy priorities, and spending should produce its intended results at the least expense.
A budgetary system, however good, is not self-contained. In particular, the system is adversely affected by multiple elements, converging uncertainties, entrenched patterns of expenditure, inflation and structural imbalances between expectations and resources.
The system must be built to cope with these realities, while being aware of self-inflicted uncertainties or rigidities.
But, whatever reforms the candidates commit to, they must realize that reform needs a broad-based sentiment that things have to be changed, and it needs leadership that is able to translate that massive dissatisfaction into concrete programs.
That is why bold reforms often require, as a necessary condition, a perception of crisis, or at least a sense of chronic deterioration. The challenge for the candidates, however, is to find a way to convey such a message to voters without sowing the seeds for exaggerated pessimism.
The writer is a senior editor at The Jakarta Post.
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