Playing a game of Monopoly with the State Budget Surplus

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Anthony Budiawan Managing Director of Political Economy and Policy Studies (PEPS)

IO – In accordance with the provisions of the Government Regulation in Lieu of Law No. 1 of 2020 concerning the State’s Financial Policies and the Stability of Financial System in order to Mitigate the Coronavirus Disease 2019 (COVID-19) Pandemic and/or in order to Face Threats that Endanger the National Economy and/or the Stability of the Financial System (a.k.a. the Government Regulation in Lieu of Law concerning the Coronavirus), the Government has issued Presidential Regulation No. 54 of 2020 (First State Budget Amendment of 2020) in 3 April 2020 and Presidential Regulation No. 72 of 2020 (Second State Budget Amendment) in 24 June 2020 to change its State Budget policies and details for 2020.

The budget deficit increased from IDR 307 trillion (2020 State Budget) to IDR 1,039 trillion (2020 Second State Budget Amendment), or increased IDR 732 trillion. However, this budget deficit did not significantly increase the State Budget. The State Budget’s increase for the year was a mere IDR 199 trillion, from IDR 2,540 trillion to IDR 2,739 trillion. In other words, increased budget deficit in the 2020 Amended State Budget was caused more by the decrease in the expected State Income due to lowered economy or the distribution of fiscal stimulus and tax cuts for both individuals and corporations.

However, the State Expenditure Budget in Second Amended State Budget of 2020 increased IDR 430 trillion from that of the actual Budget in 2019. Ideally, the increase in budget deficit and State Expenditure should be first used to control the pandemic as quickly and effectively as possible as that is the primary cause of our widespread health and economic crises. The second application should be to help shore up the finances of citizens suffering from the impact of the pandemic, having lost their livelihoods. With the aid that they are given to cover their daily needs, citizens are expected to be able to strictly follow health protocols in order to cut off the chain of infection in the middle.

However,  the  facts  couldn’t  be further from the hoped-for results. Pandemic control is essentially failing. The curve of daily new infection cases continues to soar, since March 2020, without any downturn in the trend whatsoever. On the contrary, the positivity rate increased sharply, to more than 30%, in mid-January 2021. Financial assistance to citizens is also extremely tardy by the time it gets into the hands of the people, and the amounts are woefully insufficient as well. Consequently, citizens disobey health protocols in order to desperately seek money for their daily expenditures, which in turn works to destroy the effectiveness of pandemic control.

A mor urgent concern is the fact that the Government is not strict enough in its efforts to cut down the infection chain. It seems that our authorities care more about the economy than public health. Controversies about travel and crowds include the ones involving mudik, or urbanized citizens migrating back to their hometowns, peaking with the implementation of the Simultaneous Regional Head Elections in December 2020. The infection positivity rate continues to swell, reaching more than 20% in mid-December 2020 and more than 30% in mid-January 2021.

The problem only gets worse when considering the actual State Expenditure for 2020: only IDR 2,590 trillion, for an increase of only IDR 231 trillion from 2019 Actual Expenditures. This increase is very modest when compared to the drop in domestic consumption. Data on applicable GDP published by Statistics Indonesia (Badan Pusat Statistik – “BPS”) reveals Household Consumption down IDR 144.4 trillion, Government Consumption rose IDR 2.7 trillion only, and Investment Consumption sank IDR 314.6 trillion within two consecutive Quarters (Quarter II and Quarter III of 2020) compared to figures for the same period in 2019.

On the other hand, funding of the budget (by means of incurring debt to cover a budget deficit) as of the end of 2020 is much higher than the actual budget deficit for 2020. Actual budget funding jumped to IDR 1,190.9 trillion, while the budget deficit was only IDR 956.3 trillion. This generated a gigantic State Budget Surplus (Sisa Lebih Pembiayaan Anggaran – “SiLPA”) of IDR 234.6 trillion.

There should be no SiLPA, particularly during a pandemic. SiLPA should have been used to support strict pandemic control and efforts at economic recovery by means of providing financial assistance to citizens who lost income because of the pandemic. Therefore, this gigantic amount of SiLPA during the pandemic is unreasonable. After all, SiLPA shows that State Expenditures are lower than anticipated potential, and this in turn contributes to the failure of pandemic control and efforts toward economic recovery.

Remember that economic growth figures in Quarter II and Quarter III of 2020 were minus 5.3% and minus 3.5%, in comparison with those for the same period in 2019, while the estimated economic growth in Quarter IV of 2020 remains at a minus. This reduction should have been preventable, or at least reduced, if this great amount of SiLPA had been fully spent on pandemic control and financial aid for citizens.

The House of Representatives should try and find out the causes and reasons for the Government to have amassed such a great amount of SiLPA, while total accumulated SiLPA, or Excess Budgetary Balance (Saldo Anggaran Lebih – “SAL”) at the end of 2019 was still quite large, at IDR 212.7 trillion. If we add 2020 SiLPA to this, the current SAL would be IDR 447 trillion as of end-2020, or about 7.5% of the total estimated Government debt per year-end. This gigantic volume of SiLPA and SAL in the current circumstances is certainly illogical.

Such irresponsible fiscal management amid the pandemic might end up arousing an accusation of human neglect. The Government might be suspected of deliberately holding back on State Expenditures, obstructing suppression of a pandemic that has caused thousands of deaths so far, and withholding economic recovery as well. This mammoth SiLPA is also detrimental to State finances, because the Government still has to pay interest on the loans. Potential losses to the State might reach up to IDR 33.5 trillion per annum, with an assumed average interest rate of Government Bonds at 7.5% per annum.

Such a great amount of SiLPA and SAL is unreal. It is dreamlike, as if we are playing Monopoly with toy money instead of real money. Yet this illogical tale is really unfolding in our beloved RI.