Major Spending Reforms Marred by Policy Missteps in Joko's First Year

President Joko Widodo's economic team has focused on reform as the economy continues to battle global headwinds. (Antara Photo/Yudhi Mahatma)

By : Tabita Diela & Margye J. Waisapy | on 1:51 PM December 12, 2015
Category : Business, Economy, Featured

Jakarta/Bali. President Joko Widodo's administration delivered several major reforms targeting subsidies, maritime infrastructure and alcohol sales in its first year sparking controversy among the public and big business alike.

The government started the year with the scrapping of fuel subsidies, a move that was intended to see that budget allocation shifted into much-needed infrastructure spending around the country.

"We're committed to turning unproductive spending into a more productive one by relocating fuel subsidy to capital expenditure for infrastructure and social security," Suahasil Nazara, head of fiscal policy office at the Finance Ministry, said in Nusa Dua on Thursday.

Taking effect on Jan. 1 of this year, the subsidy for gasoline was scrapped and a fixed diesel subsidy of Rp 1,000 a liter was introduced, leaving fuel prices to fluctuate according to the market.

The cuts would save the budget at least Rp 200 trillion ($14 billion), the government claimed, or almost three-quarters of the total Rp 276 trillion fuel subsidy spending in the 2015 budget.

Fuel prices have fallen throughout the year and state-owned energy firm Pertamina has helped maintain purchasing power by cutting the price of its unsubsidized fuel.

Pertamina cut Rp 100 off its products' prices on Thursday, including its high-octane gasoline Pertamax, Pertalite and diesel fuel Pertamina Dex.

The government also introduced a new formula to raise workers' salaries each year as a part of the government's seven series of policy packages — with the eighth package to be announced next week. The formula will require provinces to adjust labor wages based on the provincial inflation rate and growth.

Analysts were split over the policy, with some saying that the formula would end disputes between workers and employers and others fearing this would be too much for companies to bear.

Maritime Affairs and Fisheries Minister Susi Pudjiastuti took a different and rather a harsh approach to allowing 800,000 Indonesian fishermen households keep their source of income.

"Illegal, unreported and unregulated fishing has caused fishermen to lose their jobs," Susi said in her office, as quoted by Antaranews.com. "We've lost $4 billion in exports. We've had massive losses."

Susi gained popularity by detonating and sinking illegal foreign fishing vessels in Indonesia's seas.

On the other hand, the government took other measures to maintain staple food prices by launching infrastructure development, including improving seaborne connections throughout the archipelago.

"Sea Toll Road" is part of Joko's maritime ambitions in boosting the economy by improving connectivity between islands.

As part of the initiative, the government has started improving and constructing new ports and launching special vessels to carry goods, foods and cattle to remote areas on a fixed schedule, ensuring availability and prices.

"Because of the efficiency, transportation cost can be reduced to around Rp 320,000 from the previous Rp 1.5 to Rp 1.8 million. The Sea Toll will be like this. [Food] prices will be cheaper like this," Joko said at Tanjung Priok port on Friday, as a Camara Nusantara 1, a specially designed livestock carrier ship, arrived.

Indonesia, however, is prone to feel the impact of any development in the global economy, good or bad. Both the government and the central bank need to issue prudent fiscal and monetary policies, according to Bank Indonesia's senior deputy governor Mirza Adityaswara.

A central bank issued regulation in March sought to prevent excessive use of US dollars and stabilize the rupiah exchange rate by mandating the use of rupiah within the country. The regulation also requires price quotations of goods and services to be in rupiah.

Still, among the necessary policies, the government has issued a number of missteps this year, including a trade ministry policy targeting the sales ban of alcohol in minimarts to avoid "children's exposure to liquor."

Then Trade Minister Rachmat Gobel issued the regulation in the first months of the year, only to be met with criticism from major business and frustrated child health and safety activists. The regulation was promptly repealed after the August cabinet shuffle saw Rachmat replaced with Thomas Trikasih Lembong.

Thomas restored the authority to local governments to decide when and where alcohol can be sold, freeing up designated tourism spots to better address their needs.

Agoes Silaban of the Imported Beverages Importers and Distributors Association (Apidmi) said sales of alcohol slumped around 50 percent since the ban.

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