New government must reduce energy subsidies

JAKARTA. The Indonesian Chamber of Commerce and Industry (Kadin) has urged the new government to consider reducing energy subsidies to help foster the development of infrastructure to support Indonesia’s economy and competitiveness.

Kadin chairman Suryo Bambang Sulisto said on Tuesday that Indonesia had been left behind other countries in terms of infrastructure development since 1998 and needed to catch up, pointing to infrastructure and connectivity as the main keys of Indonesia’s economic development.

He explained that the lag resulted from the government’s decision to focus on revamping financial institutions following the 1998 financial crisis and thus it had paid less attention to infrastructure development.

“Although efforts [to revamp financial institutions] have been successful, [the development of] infrastructure has been neglected as a result,” he said on the sidelines of a Kadin discussion at the Jakarta Convention Center (JCC).

Indonesia, he said, also did not have sufficient funds to finance infrastructure development, thanks to the mammoth Rp 400 trillion (US$34.5 billion) in energy subsidies stipulated in the state budget.

“Just imagine, how much infrastructure could be developed with [that amount of money],” Suryo said, “The new government has to have the courage to cut [the subsidies].”

He admitted that, while it would be politically difficult to cut subsidies, it would provide more benefits to Indonesia in the long run.

Subsidy funds could be added to regional budgets, for example, to help create jobs, he said.

“[Some of the funds] could also be used to empower regional development banks [BPD] and help local entrepreneurs,” he said.

Infrastructure development, however, should also be focused on regions to help spread the development of industries more evenly throughout Indonesia, he said.

He added that industrial development had been too concentrated in West and East Java, which were now already overcrowded. The government has allocated Rp 246.5 trillion for fuel subsidies in the revised 2014 state budget, up by 16.5 percent compared to the 2013 state budget.

The government is likely to spend more money on fuel subsidies and risk breaking the law by running a budget deficit of more than 3 percent because there is a possibility that the consumption quota will be exceeded.

Energy and Mineral Resources Ministry downstream oil and gas division director Mohammad Hidayat recently said that the distribution of subsidized fuel had reached 22.91 million kiloliters (kl) as of the end of June, half of the 46 million kl cap for this year.

In addition, Suryo said that to improve Indonesia’s economy, the government had to seriously encourage the development of the country’s import substitution industry, which had great potential but remained unexplored.

Meanwhile, National Development Planning Board (Bappenas) head Armida Alisjahbana said that Indonesia needed investment of around Rp 6,500 trillion for infrastructure development in the next five years until 2019 to boost its business competitiveness.

She said that development of basic infrastructure should be funded from the state budget. 

She concurred that the new government would have more fiscal room to finance the development of basic infrastructure in Indonesia if it could reduce energy subsidies. (ask)