DESPITE having won the president and vice-president’s posts, respectively, Joko Widodo and Jusuf Kalla will possess little control, if at all, on the formulation of the next state budget for the 2015/2016 fiscal year. One issue that concerns the new administration is the large portion of funds for energy subsidies, particularly fuel subsidies.

To ensure his administration will have more fiscal space to fund new government projects and minimise the budget deficit, president-elect Jokowi, as he is usually called, has proposed to outgoing President Susilo Bambang Yudhoyono to increase the price of subsidised fuel as his final policy gesture before stepping down. Susilo turned down the request on the grounds that increasing the price of subsidised fuel would aggravate the economic burden of the people.

The amendment to the fuel subsidy budget would be an important step towards fuel subsidy reform. The government has allocated 300 trillion rupiah (about RM81.8 billion) on energy subsidies this year. Around 80 per cent of the energy subsidy fund, or about 250 trillion rupiah, has been spent on fuel subsidies alone. In the proposed 2015/2016 Budget, Susilo has allocated 290 trillion rupiah for fuel subsidies. The new budget also portends a relatively larger deficit ratio of 2.32 per cent to gross domestic product. Finance Minister Chatib Basri has estimated that by increasing the price of fuel and, thereby, reducing subsidies, the government could reduce the deficit ratio to 1.32 per cent.

… Keoni Indrabayu Marzuki is a research associate of the Indonesia Programme at the S.Rajaratnam School of International Studies, Nanyang Technological University.