'People's choice' Widodo eyes major spending reform in Indonesia

The new president plans to slash electricity and fuel subsidies, which would penalize Indonesia's wealthier consumers, in order to spend more on health and education.

Damir Sagolj/Reuters
Indonesia's President Joko Widodo listens to Japanese Prime Minister Shinzo Abe's speech (not pictured) at the 17th ASEAN-Japan Summit during the 25th ASEAN Summit at the Myanmar International Convention Centre in Naypyitaw November 12, 2014.

Indonesia’s new president, Joko Widodo, has begun laying the groundwork for what could be the biggest redistribution in decades in public spending in Southeast Asia's largest economy. 

Elected in July, Widodo has vowed to improve access for the country's 100 million or so lowly paid to free healthcare as well as primary and secondary education. To pay for this reform package, Widodo's administration aims to slash costly subsidies for electricity and fuel. Even with declining global oil prices, this year's fuel subsidy alone accounts for nearly $23 billion, with the greatest benefits going to the car-driving and air-conditioner-owning wealthy segment of society. 

Widodo, a carpenter-turned-mayor, swept to power on a wave of frustration among the poor and middle class that are seeking better schools, doctors and decent transport – basics that elites in Jakarta have largely failed to deliver. Voters are now looking to Widodo to do nationally what he did as governor of Jakarta: Reform a sluggish bureaucracy and boost spending on services and infrastructure, where Indonesia lags behind, despite overt displays of wealth and luxury on the capital's streets. 

Previous presidents have also set out to cut Indonesia's inefficient subsidies, with mixed results. Suharto, the longtime former dictator, was driven from office in 1998 after a spike in fuel and other daily essentials triggered widespread rioting and looting. President Susilo Bambang Yudhoyono, whom Widodo replaced last month, made only tentative moves to cut subsidies for fear of losing public support. While the rich benefits from cheap pump prices, the poor are highly vulnerable to higher prices for fuel and food. 

Widodo hasn't said how much he intends to cut in subsidies. To make higher fuel prices palatable, his administration is expected to roll out an expanded social safety net on top of six months of support payments to the country’s 15 million poorest households. 

Improving access to a doctor or a teacher would go a long way to improving quality of life, says Hasbullah Thabrany, a professor of health policy at the University of Indonesia. “Too little is spent on health care and when you look at fuel subsidies and taxes, we can afford [to spend more],” he says. 

One example? Indonesia's government rakes in about $12 billion on cigarette taxes but only spends some $8 billion on health care. In Jakarta the average resident misses about 22 days of work either from waiting for a doctor all day in a crowded hospital, or tending to a sick family member. 

Widodo’s government is expanding health services by adding coverage to an extra 4.5 million Indonesians, including orphans, homeless and mentally ill who didn’t qualify for the existing benefit because they couldn't prove residency. More than 90 million will have access to emergency and ongoing care in the coming months, up from 86 million.

The measures so far amount to a retooling of current programs. But as a once implacable opposition in the House of Representatives shows signs of warming to Widodo, a bigger overhaul of health and education spending may be in the offing. 

Sensing Widodo’s growing popularity, the parliamentary opposition, which has a controlling bloc, has offered to share some of the leadership posts it seized before his inauguration on Oct. 20.

As Widodo flexes his presidential powers, he is expected to have an easier time wooing opposition parties, any one of which would give him a majority in parliament. “The situation is pretty fluid,” says Fauzi Ichsan, chief economist and head of government relations for Standard Chartered. “There’s plenty of room for the two camps to come together.”

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