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The significance of President Joko Widodo's 2024 budget address

Fulcrum - August 22, 2023

Manggi Habir, Siwage Dharma Negara – President Joko Widodo doubtless hopes to leave behind a legacy that will remind Indonesians of his grand plans for a developed, vibrant, and economically mature country. His latest – and last – budget shows what a tall order that will be.

This year's annual Presidential Address to Parliament, made the day before the country's 78th independence day, was Indonesian President Joko (Jokowi) Widodo's final budgetary address. As expected, he listed his government's accomplishments but also had clear policy messages for his successor who will be elected next year.

Jokowi opened his speech with a personal appeal for a more civilised discourse during the upcoming elections. He humbly accepted being criticised by his detractors as "stupid", "indecisive" and "ignorant" but noted that what made him "sad is that our culture of manners and courtesy is starting to fade". He called upon Indonesians to "preserve moral decency in our public discourse and uphold the people's spirit to move forward and transform our country for Indonesia's Golden Year in 2045" (authors' translation), a reference to his Indonesia Emas vision for 2045 when the country is expected to attain high income status on its 100th anniversary of independence.

The president discussed two critical opportunities ahead. First, Indonesia's demographic bonus peaks in 2030, when 68 per cent of its population will be of productive age (defined as 15-60 years of age). He stressed the need to improve Indonesia's human capital to take advantage of this bonus. Second, Jokowi noted that Indonesia had earned the trust of the international community following its G20 presidency and ongoing chairmanship of ASEAN, and its successful handling of the pandemic. He added that Indonesia's "voice is listened to" and its sovereignty respected.

He then stressed the importance of growing the country's green economy and its downstream activities, which has received some criticism from abroad. Jokowi noted that it was insufficient to have natural resources; Indonesia needs to create more added value to improve its people's welfare, and downstream activities must include technology transfer and the use of clean energy. The president explained that downstreaming policy should extend beyond minerals, to include other potential commodities like palm oil and even coconut and seaweed.

Jokowi's 2024 Budget features an expansionary fiscal policy within the three per cent deficit threshold. The president said the state's budget reflected his government's efforts to transform the economy and protect Indonesians from future economic shocks. Considering the existing challenges facing the global economy and Indonesia's national development goals, the government has projected that government revenues in 2024 will reach Rp2,781 trillion (US$185 billion) but state spending is projected at Rp3,304 trillion (US$220 billion): the budget deficit is thus projected to reach 2.3 per cent of GDP.

The 2024 budget will be directed to achieve several key development targets, including reducing the unemployment rate from the current 6 per cent to 5 per cent, reducing the poverty rate from 9 per cent to 6.5-7.5 per cent, and increasing Indonesia's Human Development Index from 72.9 to 73.99. (Note: Indonesia uses a different methodology than the UN Development Programme (UNDP) in measuring its HDI, so the two measures are not directly comparable.) According to Statistics Indonesia, Indonesia's current HDI is 72.9, where Jakarta has the highest HDI in the country, at 81.65, while Papua has the lowest, at 61.39.

On efforts to improve Indonesia's human resources, which Jokowi said would be key to achieving its 2045 vision, the government has allocated an education budget of Rp661 trillion, some 20 per cent of the state budget. To support improving health quality, the health budget will be Rp186 trillion (5.6 per cent of the budget) and will aim to transform Indonesia's health system, including further developing the pharmaceutical industry, increasing access to and the quality of health services and facilities, increasing the National Health Insurance (JKN) programme's effectiveness, and reducing stunting.

Social protection is the next largest allocation: there is a social protection budget of Rp494 trillion (14.9 per cent of the budget) to reduce poverty and improve people's welfare. Improvements to this programme are ongoing, including using a more accurate socio-economic registration database (still in progress) for reaching those in need.

Infrastructure remains President Jokowi's flagship programme. In the 2024 budget, infrastructure spending totals Rp423 trillion (12.8 per cent of the budget) and is directed, among other things, at developing basic infrastructure, irrigation networks, energy and food infrastructure, access to information and communications technology, and finalising the construction of several strategic projects, including the planned new capital city, Nusantara (IKN). The IKN project received an allocation of Rp40.6 trillion: as reported widely, overall state investment in the IKN is projected at 20 per cent of the total estimated cost, around Rp466 trillion (about US$30.4 billion).

On food security, the government allocated Rp109 trillion, prioritised for increasing food availability, stabilising prices, developing food estates, and strengthening the national food reserves. Somewhat as an afterthought compared to the much bigger programmes above, the government's defence budget runs at Rp135 trillion or 4.1 per cent of the budget, to develop the domestic defence industry to meet Indonesia's delayed minimum essential force (MEF) needs.

This final annual budget allocation shows Jokowi's desire to complete or bring closure to many of his flagship policies, especially the megaproject for IKN. He believes that the key priorities, including infrastructure development, healthcare reforms, food security, and poverty reduction, are critical for Indonesia to achieve its 2045 vision.

In closing, Jokowi elaborated on his government's foundation-building policies which he hopes that his successor can continue. These include infrastructure and connectivity to raise the country's competitiveness and the development of rural and remote areas. Finally, the president stressed that structural reforms were important to simplify regulations, streamline permit approvals, provide more legal certainty, and prevent corruption.

Jokowi emphasised that strong leadership was required for whoever succeeds him next year and that it was important to gain enough public trust for these policies to be accepted and more easily implemented. He added that leaders must have the courage to make difficult and unpopular decisions and take a long-term perspective, using the metaphor of "a long marathon" to describe the race to 2045. However, to achieve all this, Indonesia needs a seven to eight per cent annual growth rate. Jokowi's proposed budget will struggle to grow beyond five per cent. While there is room for more spending, the government must bet on the right sectors. Furthermore, in an election year, political considerations may prevail over economic rationale.

[Manggi Taruna Habir is a Visiting Fellow at the Regional Economic Studies Programme, ISEAS – Yusof Ishak Institute. Siwage Dharma Negara is Senior Fellow and Co-coordinator of the Indonesia Studies Programme, and the Coordinator of the APEC Study Centre, ISEAS – Yusof Ishak Institute.]

Source: https://fulcrum.sg/the-significance-of-president-joko-widodos-2024-budget-address