Stagnant state budget

Salamuddin Daeng
Indonesia Political Economy Association (Asosiasi Ekonomi Politik Indonesia – “AEPI”) Economic Observer

IO – For some time, many people have been speculating that Jokowi’s Government is penniless and it would not be able to finance itself until the end of the year. This reasoning is based on the fact that State income is stagnant, there is a huge amount of maturing debts, and large subsidy burdens on petroleum fuel, electricity, and Social Security. They say that these State Budget burdens have always been covered with new debts, but now the Government has been having trouble getting new debts due to bad global conditions.

Hints of an upcoming recession have been leaked by the Government itself: Minister of Finance Sri Mulyani has gone so far as to say that a recession is on its way. Coordinating Minister for the Economy Darmin Nasution and Vice President Jusuf Kalla both warn that a once-in-10-years’ crisis is due to reappear next year. Furthermore, McKinsey and Company report that corporations in Australia, China, Hong Kong, India, and Indonesia are bearing long-term debts at more than 25% of their budgets, with interest coverage ratios (ICR) of less than 1.5. Specifically, 32% of Indonesia’s long-term debt has an ICR of less than 1.5 points. Even worse, a full 50% of Indonesia’s debts are in foreign currency, much higher than the average foreign currency debts in other countries at around 25%. This means Indonesia is acutely vulnerable to fluctuations in currency exchange values.

The Government is planning to organize Tax Amnesty II to correct for the failure of Tax Amnesty I and as another means to resolve the State’s financial problems. However, common global opinion is that the proposal is not appropriate in terms of Indonesia’s upcoming financial information era in 2021. A tax amnesty is deemed to strengthen “dirty-money farming” in our economy.

The Government’s primary issue is that we cannot continue with our current State Budget. The State’s sources of income continue to be restricted, along with a steady drop in commodity prices: coal prices fell to their lowest level during Jokowi’s term; petroleum prices have failed to rise, as hoped by the Government; CPO prices must even be maintained by requesting that Pertamina act as a buyer. The prices of other commodities are about the same. Our Government is stuck in a monetary crisis, and we are facing a shutdown.

Eternal Poverty or Surprise Riches
If we look briefly, the load of the State Budget expands as time goes. Maturing debts are more than IDR 400 trillion; petroleum, LPG, and electricity subsidies are up to IDR 130 trillion a year; health security (BPJS) subsidies exceed 80 trillion. Our educational funds are restricted to 20% of the State Budget, while Village Funds are restricted to IDR 1 billion per village. Even health security funds are restricted. Consequently, it is doubtful that our State Budget is capable of repaying our country’s maturing debts next year, let alone funding development.

However, a more comprehensive look would reveal that Indonesia has much money. These monies are not on the table, but under it instead. They are stored illegally in dark places, in back offices for funding illicit economies, finances, and trades. This large amount is never touched by tax regulations, financial laws, let alone law empowerment. How much exactly are we talking about? Swiss banks announced that Indonesian monies deposited in that country total up to IDR 7000 trillion, with another IDR 4000 trillion securely deposited in Singapore. President Jokowi claims to have a list of Indonesian citizens who deposit their monies illegally abroad in order to avoid taxes, and that such monies circulate as proceeds of financial crimes. Ministers of Finance Sri Mulyani and Bambang Brojonegoro are said to have worked hard to resolve this issue of Indonesian money abroad.

There is only one step for President Jokowi to take, really: he need only confiscate the money and return it to Indonesia. Let the State manage these funds as a source of development funds – not just for developing Indonesia, but also developing ASEAN, Asia, and even the world. With a total of IDR 11,000 trillion, Indonesia can establish new investment banks, infrastructure banks and even international banks as capital for global development, based on mutually beneficial cooperation.

Mutual Legal Assistance (MLA)
Everyone is waiting for President Jokowi to take appropriate action. The international banks where these monies are deposited have already opened up their books to the Indonesian Government, as they are rightfully concerned about possible legal issues that may arise due to the extremely large amounts of illegal flight capital on their hands. Many European financial officers, especially in Switzerland and Germany, have even been imprisoned for having facilitated tax embezzlement and money laundering. They are fully aware that in an ICT era, all information transparency would mean trouble if anyone is caught having hidden monies from financial crimes, even inadvertently.

2021 will be the start of the financial information transparency era. Information transparency is simul­taneously occurring with a 5G tsunami of digitalization – nobody will be able to hide their wants and needs. Neither individuals nor banks will be able to cover up the presence of illegal funds. They are facing strong punishment if they persist with this. Many countries are actively hunting down illegal funds: the United States hunts down anyone who dares to cheat on their taxes; China has validated an Extradition Law that would help them capture financial crime perpetrators and have them tried in China for their crimes. Anyone who owns and deposits money faces an international threat: be open now, or be in prison later.

The President should not organize Tax Amnesty II. On the contrary, it should implement a regional Mutual Legal Assistance (MLA) agreement with ASEAN, as well as the bilateral one signed by Indonesia with Switzerland. MLA will provide the grounds for confiscating all the Indonesian monies from financial crimes deposited abroad. Tax amnesty would return these illicit funds to their owners, while MLA would return the money to the country that suffers from the relevant financial crimes.

If President Jokowi is willing (and he should be, if he does not wish to be accused of protecting financial criminals), Indonesia will suddenly be rich. If he does this, President Jokowi would have no trouble moving one capital city, he would be able to afford building even 30 new capital cities! State Budget deficits; health security deficits; petroleum, LPG, electricity subsidies; foreign debts – all these would be gone with a mere flick of his little finger.