by Karnoto Mohamad
JOKO Widodo will end his term as president this year. The public still awaits the official announcement from the General Election Commission (KPU) regarding his successor. Meanwhile, the candidate pair Prabowo Subianto and Gibran Rakabuming Raka have already claimed victory based on quick count results. Prabowo-Gibran’s victory is due not only to President Joko Widodo’s endorsement but also to the “enticement” of free lunches from Prabowo. Meanwhile, various elements of the nation, including the candidate pairs Anies Baswedan-Muhaimin Iskandar and Ganjar Pranowo-Mahfud MD, believe that the 2024 presidential election is full of irregularities, starting from manipulating the constitution by the Constitutional Court (MK) to push through Gibran, who is only 36 years old.
In the world of economics and politics, there is no free lunch. No free for lunch, says Milton Friedman, the 1976 Nobel laureate in economics. There is a cost or compensation for what is enjoyed. The political cost of free lunches and free milk certainly comes from the state budget (APBN), which is funded by taxpayers. The APBN deficit, set at 2.29% or IDR 522.8 trillion in 2024, will swell to IDR 922.8 trillion if the budget for free lunches and free milk, which is nearly IDR 400 trillion, is added.
To prevent a maximum 3% deficit, there is talk of cutting routine expenses such as subsidies, set at IDR 286 trillion in 2024, with IDR 189.1 trillion earmarked for energy subsidies. If energy subsidies such as fuel, electricity, and gas are cut, then the public will have to dig deeper into their pockets for daily needs. Inflation could rise. Meanwhile, since the beginning of the year, the price of rice has already soared due to shortages, one of the reasons being the massive spending on social assistance (bansos) by the government for political purposes ahead of the presidential election.
Different from providing subsidies such as interest, energy, and fertilizer that encourage farmers to be more productive in producing food. Free lunch and milk programs can increase food imports. However, six out of nine staple goods (sembako) still need to be fulfilled from other countries, such as flour, soybeans, fruits and vegetables, salt, and even rice. According to the Ministry of Trade data, in 2023, Indonesia imported various food items such as wheat worth US$5.95 billion, dairy eggs and butter worth US$1.47 billion, fruits US$1.44 billion, vegetables US$1.01 billion, animal meat US$1.02 billion, and salt US$1.33 billion.
Rice imports also continue, from 444 thousand tons in 2019, 356 thousand tons in 2020, 407.7 thousand tons in 2021, 429 thousand tons in 2022, to 3.06 million tons in 2023. The government has announced rice imports again with a quota of 3 million tons in 2024; 2 million tons are targeted to arrive from January to March.
However, in 2014, Jokowi promised that Indonesia would achieve food self-sufficiency starting in 2017, and economic growth would reach 7%. Throughout Jokowi’s administration, economic growth from 2014 to 2023 averaged only 4.11% per year. Efforts to improve competitiveness and downstream programs have been unable to restore the strength of the manufacturing industry. Deindustrialization also continues. The contribution of the manufacturing industry to GDP continues to shrink from 22.04% in 2010, 21.08% in 2014, 20.99% in 2015, 20.52% in 2016, 20.16% in 2017, 19.86% in 2018, and 19.70% in 2019, 19.87% in 2020, 19.24% in 2021, 18.34% in 2022, and 18.67% in 2023.
Amid fiscal limitations, the government is promoting infrastructure development through debt, both directly and through state-owned enterprises (BUMN). Public sector debt continues to swell, including sluggish BUMN projects due to seeking loans in the market for government assignments.
According to Infobank Research Bureau data, the development of public sector debt, which was IDR 3,431 trillion or 35.95% of GDP in 2013, jumped to 54.68% in 2014 and continues to increase every year until reaching IDR 14,444.46 trillion or 73.73% of GDP in 2022, and is estimated to reach IDR 15,500 trillion or 74.19% of GDP in 2023. Specifically, government debt during the first five years of Jokowi’s administration increased from IDR 2,608 trillion to IDR 4,514 trillion in 2019, reaching IDR 8,041.01 trillion in 2023.
The debt increased because of the cost of building infrastructure such as toll roads and dams, purchasing defense equipment, and distributing social assistance. It’s horrifying when the debt interest is much larger than healthcare costs. In 2023, healthcare costs amount to IDR 172.5 trillion, smaller than the interest payment costs of IDR 437.4 trillion. In 2024, healthcare costs are planned to be IDR 187.5 trillion, while the interest on debt is IDR 437.4 trillion.
This means that economic growth throughout Jokowi’s administration has been largely financed by massive debt since 2015. Meanwhile, the sources of economic growth from exports depend on unsustainable commodities, and the expected increase in investment does not occur due to inconsistent policies and many hidden high costs in the field.
While talking about bank credit, it is often encouraged by Jokowi to flow more generously, it only recorded an average growth of 8.11% per year from 2014 to 2023. Before 2015, bank credit was still driving the economy. Credit growth began to slow down since 2015, and its role was replaced by the state budget (APBN). In 2014, credit growth was still at 11.65%; in 2015, it dropped to 10.40%.
In 2017, credit grew by 8.35%, and 12.05% in 2018, then slowed to 6.08% in 2019. During COVID-19, credit declined, even in 2020, credit contracted by minus 2.4%, and in 2021, credit grew by 4.92%. By the end of 2022, credit grew by 11.63%. The credit growth in 2023 is 10.61%.
Amid budget limitations, Jokowi often urged bankers to increase their credit disbursements to boost the economy actively. “I invite the banks. Indeed, it must be prudent, careful. Yet, the credit should be encouraged, especially for SMEs. Don’t all rush to buy from BI or SBN,” he said at the Bank Indonesia Annual Meeting (PTBI) in 2023 at the end of last year.
However, bankers work according to business mechanisms. They do not need to be instructed to disburse credit because a bank’s lifeblood comes from credit. If banks are not eager to disburse credit, the economic conditions do not support it. Banks have strategies tailored to their risk appetite and business plans, including portfolio placement or liquidity management assets.
As the majority of productive assets in banks are still in the form of credit, based on the Indonesian Banking Statistics from the Financial Services Authority (OJK) in 2023, the amount of credit from commercial banks reaching IDR 7,186.93 trillion has a ratio of 61.08% of the total assets reaching IDR 11,765.84 trillion. This has increased from the 2022 position of 58.72% of total assets. Meanwhile, the portion of securities is only 16.89% of total assets, almost unchanged from the 2022 ratio of 16.84% of bank assets reaching IDR 11,065.74 trillion.
The issue arises from the financial inequality indicated in the lopsided structure of third-party funds (DPK). The majority of deposits in banks are held by the super-rich. Just look at the Deposit Insurance Agency (LPS) data as of October 2023. Of the banking DPK amounting to IDR 8,269 trillion, 61% is owned by 348,536 accounts or 0.064% of the total accounts, reaching 546,991,010 accounts. These accounts have deposits of IDR 2 billion and above, totaling IDR 5,065 or 61%.
On average, they have deposits of IDR 14,532,214,749.69 per person. Meanwhile, there are 540,347,322 accounts with deposits below IDR 100 million, totaling IDR 1,007 trillion, so the average deposit is only IDR 1.86 million. This group is layered, with hundreds of millions of people having balances below IDR 1 million. However, even more affected are the 90 million people who do not have a bank account and have no financial future.
This banking DPK structure aligns with what Garibaldi Thohir, one of Indonesia’s crazy rich individuals, stated, claiming that a third of Indonesia’s economy is contributed by a small number of people like himself. Previously, the Global Wealth Report from Credit Suisse 2022 also reported that the richest 1% controls almost 37.6% of the total wealth in Indonesia. Ten years ago, the World Bank even mentioned that the richest 10% of Indonesians controlled 77% of the country’s wealth, with 1% holding half of that wealth.
Almost the past 10 years, economic growth has not matched what Jokowi promised during the 2014 campaign. Promises remained just promises. But that is what a campaign is. The important thing is that the public feels happy. The promised 7% economic growth did not materialize. Perhaps, and maybe even by the next president, if economic ailments like corruption, collusion, and nepotism that nourish economic rent are not addressed.
The problem is if the elected president positions themselves as the successor of continuity who will continue to be ‘thirsty’ for debt to support economic growth. In the International Debt Report 2023, the World Bank warned developing countries burdened by debt amid an unstable global economy.
The World Bank revealed that these countries’ interest payments have quadrupled over the past decade. Low and middle-income countries spent up to US$443.5 billion to pay off debts and had to cut budgets from health, education, to other essential needs.
The debt interest of IDR 437.4 trillion that the Indonesian government has to pay in 2024, larger than the healthcare cost of only IDR 187.5 trillion, should also be noted. And when the Indonesian government’s debt shrinks fiscal space due to populist expenditures such as free lunch programs, the next president should not push economic growth by encouraging bankers to boost indiscriminate credit. The money in the bank vaults belongs to the public. It is not the money of ‘grandma’s purse’ or the super-rich inheritance of Prophet Solomon in his time. (*)
