Jakarta. President Prabowo Subianto recently issued an unprecedented directive, mandating a reduction of up to Rp 306.7 trillion (approximately $18.8 billion) in government spending across various ministries and state agencies. This cut represents about 8 percent of the initially allocated budget for this year.

The primary goals of these austerity measures are to enhance governmental efficiency and fund social welfare initiatives, notably Prabowo's flagship free nutritious meal program. This school-feeding initiative aims to provide meals to 80 million people nationwide, targeting a reduction in the national stunting rate and bolstering the local agricultural sector.

The House of Representatives has approved a state budget totaling Rp 3,621.3 trillion ($221.6 billion) for the 2025 fiscal year, with Rp 1,160.1 trillion ($71 billion) allocated to ministries and government agencies. This budget supports 48 ministries and various government bodies. While an 8 percent reduction might seem modest, it could significantly impact the performance of these entities and, by extension, affect non-government sectors if not managed effectively.

For instance, the Public Works Ministry faces a 70 percent budget reduction, potentially leading to delays or cancellations of infrastructure projects. This scenario threatens employment for many contract workers and could adversely affect suppliers involved in multi-year projects awaiting payment. Consequences may include rising unemployment, which could, in turn, lead to increased social issues such as crime and other societal challenges.

Operational aspects of government processes, including asset maintenance and official travel, are also set to be affected. While it's prudent to curtail ceremonial activities and unnecessary overseas "comparative studies," reducing participation in international forums -- such as those hosted by the World Trade Organization (WTO), ASEAN, or the Asia-Pacific Economic Cooperation (APEC) -- could diminish Indonesia's diplomatic presence and negotiating power. Many of these forums expect delegations from the capital, and relying solely on diplomatic missions may not suffice, given the specialized knowledge required.

Domestically, reducing expenses for internal business trips warrants caution. During former President Joko “Jokowi” Widodo’s first term, the Trade Ministry proactively sent senior officials to various regions to prepare for the Ramadan season. They coordinated with local authorities to monitor staple goods' prices, enabling swift action to address potential price hikes, especially when multiple agencies were involved.

Regional governments are expected to receive reduced cash transfers from the central government, affecting their capacity to monitor staple food prices -- an area where central oversight may be limited.

Conversely, Indonesia plans to increase defense spending, raising the Defense Ministry's budget from Rp 155.98 trillion ($9.5 billion) to Rp 165.16 trillion ($10.1 billion). This move aims to elevate defense spending to 1.5 percent of the gross domestic product (GDP), addressing rising global geopolitical tensions, particularly in the South China Sea. The additional funds are intended to improve soldiers’ welfare, upgrade military equipment, and develop defense infrastructure. 

While reallocating the budget towards social and defense programs may boost the national GDP, reducing investment in economic infrastructure could have long-term negative effects. Infrastructure is crucial for economic growth, and cuts in this area may slow development and deter private investors, especially those reliant on robust infrastructure, thereby diminishing potential job opportunities.

A more effective approach would involve addressing budgetary inefficiencies, particularly corruption involving the misuse of state funds. We should never forget the large amount of state money stolen from state-owned companies in the transport, energy, mining, of finance sectors that have received state capital injection. We have also learned about major corruption scandals in ministries related to social aid programs and the 4G base transceiver stations project.  

It's essential to distinguish between corrupt or arbitrary decisions by officials and legitimate discretionary actions taken by ministers and agency heads who report directly to the president. Discretionary authority allows these leaders to make decisions without presidential involvement in every matter, provided such decisions are discussed with relevant entities and reported back to the president.

Lawmakers, political parties, law enforcement agencies, and the public should avoid hastily criminalizing decisions made under legitimate discretion. Such actions can create a climate of fear, discouraging officials from making necessary decisions and potentially leading to administrative paralysis. They tend to maintain the status quo by not taking any policy until issues escalate and presidential intervention becomes necessary. Or, they let the president handle the problem from the beginning despite knowing that the president should dedicate his time and mind to strategic matters only.

Both increases and reductions in government budgets present challenges related to corruption. Limited budgets may tempt officials to seek illicit income sources, while larger budgets could intensify desires for personal gain, especially when comparisons are made with more affluent peers.

Public sector corruption, including within state-run companies, has surged over the past decade. Despite extensive media coverage, deterrent effects remain minimal, with those caught often viewed as merely "unlucky."

In allocating budgets to social welfare programs like free meal initiatives, direct cash aid, and defense, the government must adopt a zero-tolerance stance on corruption. This approach is crucial for achieving economic growth beyond 5 percent, rebuilding foreign investor trust, ensuring sustainable productivity, and fostering social justice and prosperity for all Indonesians.

---
Iman Pambagyo is the Trade Ministry’s Director General of International Trade Negotiations (2012-2014, 2016-2020) and Indonesia’s Ambassador to the WTO (2014-2015).

The views expressed in this article are those of the author.