The budget, politics and national trajectory

Wijayanto

A friend of mine, a senior politician, believes that the fuel price increase was the right thing to do, but confessed that the logic of politics is different to the logic of economics.

So, from a political perspective he agreed with the movement to reject the government’s plan to increase fuel prices. He is happy with the decision since a recent poll showed a increase in his party’s popularity by several points.
Despite the enormous cost faced by the nation for fuel subsidies, from the politicians’ point of view, poll results are far more worthy of attention. 

Just a day before March 31, the deadline for the fuel price rise approval by the House of Representatives, I watched a debate on fuel subsidies on television. One of the speakers was a young lawmaker who I know quite well. I noticed from his body language and facial expressions that he looked very uncomfortable, a common situation when someone has to defend something that he doesn’t believe in.

He described a list of reasons why he disagreed with the move to increase the fuel price. Yet his statement contrasted with his thoughts during our private conversation several days earlier. I was not surprised: after all, he is a politician.  

These stories are not unique. It is a public secret that most politicians are self-centered and display a strong “what’s in it for me” mentality.  Most put their party’s interest ahead of the nation, and often their own interests beyond those of the party.

Politics, beyond policy

Since the fall of President Suharto in 1998, Indonesia’s politics have been very dynamic. The House of Representatives (DPR) has been involved in various decisions ranging from micro issues such as the selection of boards of directors at state-owned enterprises to macro issues such as designing the national budget (APBN).

Unfortunately, political decisions are often spontaneous, opportunistic and short-sighted. Consistency is a rarity. When politics is beyond policy, we will see inconsistency in public policy, which will swing from one direction to another without a clear trajectory. The profile of our APBN perfectly depicts such a phenomenon.

During the New Order era, our APBN clearly indicated the government agenda. It was in line with the government’s long-term plan, which put priority on the development program and infrastructure improvement.

Following political reform in 1998, the situation changed. Observing the profile of our APBN from 1999 to 2012, it is difficult to understand what is our long-term plan and priority, probably because there is none.

A study by the International Energy Agency (IEA) shows the amount of fuel subsidies in various countries. With $15.6 billion spent on fuel subsidies in 2010, Indonesia was ranked in ninth place, below oil-rich and mostly undemocratic countries such as Iran, Saudi Arabia, Russia, Venezuela and the United Arab Emirates, as well as the two Asian powerhouses, China and India.

In the 2012 APBN, Indonesia’s spending on fuel subsidies looks set to become the fourth largest in the world, a heart-breaking fact.
 
Infusing policy into politics

Indonesia has a long-term development plan called Rencana Pembangunan Jangka Panjang (RPJP). It is well written. Unfortunately, a huge disconnect exists between the blueprint and its implementation.

RPJP is a 25-year plan which put improvement of national competitiveness as its main priority. However, instead of allocating more resources on investment that have a long-term impact (i.e. infrastructure and development programs), the APBN spends more on consumption with short-term impacts (i.e. subsidies and salaries). Just like a politician’s mind, it is short-term oriented.

Having a sound public policy is important to enable Indonesia to explore its great potential. The APBN is one of the most important policies in that context. Our resources and time are limited and how we spend and allocate resources is a key success factor for Indonesia, since public spending plays a role as a locomotive of development.

The debate at the House on the issue of increasing fuel prices provides two most important insights. The debate was short-term focused and based on partisan and not comprehensive data and analysis. Those who were in support and those against the plan used totally different data and analysis. Consequently, finding an optimal solution was a tough undertaking.

Policymakers are concerned about how to avoid the revised APBN from collapsing. However despite the importance of understanding the future impact of the decisions they have made, there was no debate on such issues. There was no concern over our long-term trajectory, such as the impact on our budget profile over the next five years, 15 years or 30 years. Such data and analysis do not exist.
This is very much in contrast with debate in advanced democracies such as the US. When in 2011 the Congress debated the debt-ceiling level, discourse was dominated by concern over the long-term impact (i.e. the next 30 years) on the nation.

Congressmen framed their debates based on comprehensive data and analysis provided by the Congressional Budget Office (CBO). This office, established in the 1970s, helps policymakers by providing common ground and a corridor for discussion to enable lawmakers to come up with sound and thorough policies.  

Other countries have similar offices. In 2010, the UK established the Office for Budget Responsibility, while in 2008 Canada created the position of Parliamentary Budget Officer. Several emerging countries in the region plan to or have established such institutions. Indonesia needs to consider this alternative seriously, since budget policy is a major issue.

Politicians all over the world probably have typical personality traits. They have a “what’s in it for me mentality” and are very opportunistic. Asking them to change their character is close to wishful thinking. Providing them with common ground, a corridor for discussion and a system of accountability is a more realistic option.
It is true that Indonesia has a long list of public policy issues to improve. First things first: promoting a sound budget policy by managing budgetary politics is at the top of the list.

Wijayanto is the vice rector of Paramadina University, and is the co-founder and managing director of Paramadina Public Policy Institute. He can be reached at wijayanto@paramadina.ac.id.