Budget Cuts in Indonesia

By Stefanno Sulaiman

JAKARTA (Reuters) – The lobby of Indonesia’s Economic Affairs ministry was a bit darker this week when some lights were turned off as the minister looked for savings after President Prabowo Subianto ordered $19 billion of budget cuts to help fund election promises.

Ministers have responded to the presidential direction by cutting spending across the board, from maintenance of roads and bridges to travel, as well as operating costs and new equipment.

The budget savings can help fund Prabowo’s flagship free school meals programme, set to cost $28 billion annually when fully implemented, and other stimulus measures. However, some analysts warned such deep and sudden cuts could disrupt services and harm economic growth.

> “I think this cut is too extreme, because we don’t really know for sure the impact of free meals on the economy. That would not be as big as the government being able to provide optimal services for the people, good roads and so on,” said Jahen Rezki, an economist with the University of Indonesia.

The Public Works ministry, responsible for most of the government’s infrastructure investment, has been ordered to cut 80% of its budget, including maintenance spending on roads and bridges, local media reported.

Ministries have also been instructed to reduce spending on travel, consultants, training, stationery, and other areas.

> “Related to budget efficiency, our ministry budget was cut by 52.5%, so to symbolize that we were cut, we turned off the lights,” said Economic Affairs Minister Airlangga Hartarto.

Investment Minister Rosan Roeslani stated that his ministry would invite investors to Indonesia through virtual meetings instead of staff travel.

The hotels and restaurants association expressed concern that if the government cancels seminars and most domestic travel, the hospitality and transportation sectors would be severely impacted, according to its secretary general Maulana Yusran.

Programme Expansion

The spending cuts come shortly after the government cancelled most of a legislated tax hike, complicating efforts to keep the budget deficit under control.

During last year’s election campaign, investors were worried about Prabowo’s fiscal strategy after the former general indicated he would take on more debt to fund his election promises.

Prabowo is now considering a request for an extra 100 trillion rupiah of funding to rapidly expand the scheme soon after its launch, which is flagged as a way to boost economic growth.

Some economists assert that the efficiency drive on government spending could be beneficial for Southeast Asia’s largest economy if unnecessary expenditures are eliminated.

> “I am cautiously optimistic that development spending and fiscal pump priming will be able to shore up the economy,” said UOB economist Enrico Tanuwidjaja.

($1 = 16,327 rupiah)