Indonesia to Reduce Energy Subsidies to 0.3 Pct by 2019

Nusa Dua, Bali (Antara Bali) - The Finance Ministry plans to reduce the budget for energy subsidies in stages to 0.3 percent of the Gross Domestic Product (GDP) by 2019, from 1.2 percent or Rp137 trillion in 2015.

The acting Head of Fiscal Policy at the ministry, Suahasil Nazara, said on Thursday that a lot of the money that had been deposited for energy subsidies, would be reallocated to the productive spending sector.

The mechanism for subsidy distribution will be strengthened so that an incentive can be given to the people, who are really in need, for essential goods expenditure.

"We wish to make spending maximal and boost economic productivity, instead of using the funds for mere consumption," he said on the sidelines of an international seminar on economic development and fiscal reform policy, aimed at supporting strong growth and equal distribution.

Suahasil, however, did not reveal whether the scheme for subsidy reduction has been implemented yet, or what will be the changes in subsidy allocation.

He said the energy subsidy this year, which was set at 1.2 percent of the GDP, would be reduced to 0.8 percent in 2016, 0.5 percent in 2017, 0.4 percent in 2018 and 0.3 percent in 2019.

The scenario, he explained, was that the relocation of the energy subsidy would increase the budget for capital spending in the 2015 national budget, which is still pegged at 2.2 percent of the GDP in 2015, to 2.5 percent in 2016, 4.0 percent in 2017, 4.6 percent in 2018 and 5.3 percent in 2019.

The subsidy reduction would also be coupled with an increase in the allocation of budgets for social programs, which has been recorded at a mere 0.9 percent of the GDP this year. By 2019, the budget is expected to increase to 1.0 percent of the GDP, he pointed out.

Suahasil said the rise in capital spending is expected to accelerate infrastructure development. The growing productive capital spending is also expected to attract investors and private participation in development programs to cover the shortage in development funding.

Increased spending for social programs, meanwhile, is needed to protect the poor from various pressures and is also aimed at spreading economic growth more evenly across community members.

At the moment, the government is still studying the mechanism for the extension of subsidies for social programs to ensure that it meets the right target and is effective.

The Indonesian government has also set a target of economic growth at more than 7.0 percent for 2019.

"For example, the idea of replacing rice for the poor with cash. According to academicians, the money could be transferred through programs, such as the Family Hope Program. According to them, giving money is more efficient than distributing rice. What is important is to ensure that the money is used correctly," Suahasil noted. (WDY)