Jakarta. President Joko "Jokowi" Widodo plans to splurge on social assistance programs and public servants next year, ahead of a crucial election in which he seeks a second term.
The government has proposed a 38 percent increase to Rp 381 trillion ($26 billion) for social assistance programs, which include health insurance, conditional cash transfers, scholarships and food stamps. The government is set to spend 287 trillion on social assistance this year, which is 5.2 percent more than last year, while the government only spent Rp 249 trillion on social aid in 2015, during Jokowi's first year in office.
Social assistance will be provided to 96.8 million beneficiaries under the National Health Insurance (JKN) program, while 10 million families will receive cash transfers under the Family Hope Program (PKH). More than 20 million students will further receive educational aid under the Smart Indonesia program and 471,800 college students will receive scholarships under the Bidik Misi program. The government will also provide 15.6 million families with non-cash food aid.
"All these programs are aimed at ensuring that the poor and low-income earners are buffered against economic shocks," Finance Minister Sri Mulyani Indrawati said during a press conference on Thursday (16/08).
Jokowi, who is set for a rematch with former Army general Prabowo Subianto in April's presidential election, has yet to fulfill his promise of 7 percent annual economic growth. The government has only set a growth target of 5.3 percent for next year, while opposition parties have indicated that they will contest Jokowi's presidential bid on the economic front.
"The religious issue is over," Fadli Zon, deputy chairman of Prabowo's Great Indonesia Party (Gerindra), was quoted as saying by Kompas.com earlier this week.
"Now the economy is the most important matter, which people experience every day. Prices are all going up, including fuel and taxes, eroding people's purchasing power," Fadli said.
The government is currently facing the grim reality of a weakening rupiah, which will soon translate into higher domestic prices as Indonesia remains the among the world's largest importers of fuel and commodities such as rice and soybeans.
"In the beginning of his term, the budget was more productive. But approaching the election year, his policies will become more populist with a focus on welfare, employment and inequality," Bhima Adhinegara, an economist at the Institute for Development of Economics and Finance (Indef), said on Friday.
Jokowi will likely replicate the strategy of former President Susilo Bambang Yudhoyono, who increased the government's cash transfer budget by 20 percent when he ran for re-election in 2009.
"It is aimed at securing more votes. The important thing is to win first and once re-elected, the budget policy will return to what it was before," Bhima said.
Jokowi hopes his social assistance programs would help him achieve his target of reducing the poverty rate, or the number of people living on less than Rp 402,000 per month, to between 8.5 percent and 9.5 percent of the country's total population of 264 million by next year, after having managed to reduce the poverty level to a record-low 9.8 percent in March.
Income inequality in Indonesia, as expressed by the Gini ratio, also dropped to a six-year-low of 0.389 this year, due to the implementation of social assistance programs over the past four years.
Investment bank Morgan Stanley said in recent research note that social and infrastructure spending tend to increase in the runup to elections in Indonesia, bringing economic benefits through increased household consumption.
The government will also spend a sizable portion of the state budget on subsidies next year. It will make Rp 221 trillion available to subsidize fuel, electricity, public services, fertilizers and interest rates. And while this amount is 3.2 percent less than this year, it is still 35 percent higher than in 2017.
Jokowi was lauded for his decision in 2015 to cut subsidies and direct the funds to more productive sectors of the economy, such as infrastructure development, but rising global energy prices over the past two years have forced the president to face the stark reality that Indonesians' purchasing power has been eroded.
The government also plans to increase the salaries of Indonesia's more than 4.3 million public servants, who have not received pay rises since 2016. It hopes the additional money they receive in salaries will prop up consumption. Household spending growth, which accounts for half of the Indonesian economy, has remained flat at around 5 percent over the past few years.
"We also have to look at the long and medium term, as pensions are relatively small, so raising basic salaries will help public servants in their retirement," Askolani, director general of budgeting at the Ministry of Finance, told reporters.
The salaries of public servants increased every year between 2007 and 2015, but stopped in 2016 when the government allocated 13th checks and holiday bonuses as compensation. They will still receive these benefits next year, in addition to the pay rises.