ADDRESS OF THE PRESIDENT OF THE REPUBLIC OF INDONESIA ON THE PRESENTATION OF THE GOVERNMENT STATEMENT ON THE BILL ON THE STATE BUDGET FOR THE 2018 FISCAL YEAR AND ITS FINANCIAL NOTE BEFORE THE PLENARY SESSION OF THE HOUSE OF REPRESENTATIVES OF THE REPUBLIC OF INDONESIA
Date 16 Agustus 2017
Unofficial English Translation
Assalamualaikum Warahmatullahi Wabarakatuh,
May we be bestowed with peace and prosperity,
May we be bestowed with Virtue,
Honourable Speaker, Vice-Speakers, and Members of the
House of Representatives of the Republic of Indonesia;
Honourable Speaker, Vice-Speakers, and Members of the Regional Representatives Council of the Republic of Indonesia;
Distinguished Heads, Vice-Heads, and Members of State Institutions;
My fellow countrymen,
Distinguished Ladies and Gentlemen,
It is imbued with our profound gratitude to God the Almighty that, this afternoon, we are able to attend the Plenary Session of the House of Representatives of the Republic of Indonesia, on the occasion of the presentation of the Government Statement on the Bill on the State Budget for the 2018 Fiscal Year and its Financial Note.
The presentation of the Government Statement on the 2018 Bill on the State Budget is made at a particularly auspicious moment for all of us, as we approach the commemoration of the seconds leading up to the 72nd Anniversary of the Proclamation of Independence of the Unitary State of the Republic of Indonesia. This moment reminds us all of the promises of freedom that we must fulfill, that we must accomplish, that we must deliver. This is a moment that reminds us all that the Proclamation of Independence is the gateway towards realizing an Indonesia that is independent, united, sovereign, just and prosperous. This is a moment that reminds us all that the promises of independence can only be achieved if we work collectively, work collectively, work collectively.
The drawing up of the 2018 Bill on the State Budget is a concrete manifestation of the collective work between the Government, the House of Representatives, and the Regional Representatives Council. In the process of preliminary deliberations with the House and the Council held recently, the Government has received constructive inputs from the Honourable Members of the House. With these inputs, the Government is able to draw up the 2018 Bill on the State Budget, and is able to present it to the Plenary Session of the House on this day.
God Willing, this collective work between the Government and the House would be beneficial to the entire Indonesian people and may transform the Indonesian nation into a nation that is self-sufficient, sovereign, and distinctive in personality, which are in conformity with the noble ideals of our forebears.
Honourable Speaker, Vice-Speakers, and Members of the House,
The 2018 Bill on the State Budget constitutes the fourth year of the implementation of the Working Cabinet development programmes in a bid to achieve the development goals and is aimed at realizing prosperity and social justice for the entire Indonesian people. Within the last two years, we have laid a solid foundation by reforming the direction of the national development to become more productive, equitably distributed, and just.
Consequently, the 2018 Bill on the State Budget must become a fiscal instrument to boost national economic growth and a just and equitably distributed economy, particularly in the efforts to alleviate poverty, address inequality, and create employment opportunities. In the midst of a global economic situation that is yet to be fully normal, the drawing up of the 2018 Bill on the State Budget must be made realistically, credibly, resiliently, and sustainably, in order to maintain economic stability and business confidence.
In 2015, we have laid a robust foundation for the national development through a fundamental transformation of the national economy. The development paradigm, which was once consumptive in nature, has been changed into a productive one. The energy subsidy expenditures, which were not well-targeted, have been reallocated to various priority programmes for the community, including in the infrastructure sector. We have also begun to allocate the Village Fund to generate a more equitably distributed and just development to the farthest reaches of the homeland, which have so far been mostly left untouched by the development.
In entering the year 2016, the Government moved with higher speed by declaring 2016 as the Year of Accelerated Development, both in physical infrastructure and in social infrastructure. In addition, the acceleration of economic deregulation was also carried out by issuing several Economic Policy Packages.
In 2017, the Government is determined to make a Just and Equitably Distributed Economy as the central focus of the development. This policy primarily covers:
Fist, the redistribution of assets, through the granting of management rights on unattended plots of land to the community, to allow them to be managed and cultivated more productively, and through land legalization by accelerating the certification of lands owned by the people.
Second, the strengthening of the peoples access to capital, through the Peoples Business Credit that reaches a wider number of the society, is larger in amount, and is easier to acquire.
Third, the improvement of the societys skills, through vocational education programmes, and vocational education and training on a massive scale.
Honourable Members of the House,
Praise be to God, owing to our unyielding collective work and by the grace of Allah SWT, the national economic development has shown quite promising achievements. In the midst of a global economic slowdown, weakening global commodity prices, and a geopolitical condition that is yet to be fully conducive, the Indonesian economy is able to grow at an average rate of 5.0 percent annually in the period of 2014-2016, and rose to 5.01 percent in the first semester of 2017, driven by an improved export performance and increased investment.
An economic growth that is sustained on an upswing, coupled with various improvements in budget management, continues to encourage investor confidence in us. The World Bank ranks Indonesia as one of the highest ranked countries in the Top Improvers for ease of doing business and lifted Indonesias ranking from 106th to 91st in the Ease of Doing Business index for 2017.
In May 2017, the Standard & Poors rating agency upgraded Indonesias sovereign credit rating to investment grade. Previously, Fitch and Moodys also raised the outlook for the investment grade rating of Indonesias sovereign credit, from stable to positive, concurrently with macroeconomic stability and improved national economic resilience. With these international recognitions, for the first time, Indonesia acquires the rank of investment grade from all the major rating agencies since the post-1997 Asian financial crisis.
With the support of infrastructure improvements and the logistics of the peoples goods supply, as well as the close cooperation between the Government and the Bank of Indonesia, the inflation rate has been kept in check at 3.35 percent in 2015 and 3.02 percent in 2016. Consequently, the peoples purchasing power could be maintained. Inflation control continues to be maintained in 2017, so that until the month of July and through the period preceeding the Eid Al-Fitr, the realized inflation rate could be sustained at a level of 2.60 percent.
In terms of the peoples welfare, the number of poor people continues to decline. In March 2015, the number of poor people totalled 28.59 million people and in March 2017, it decreased to 27.77 million people. Faced with this challenge, the Government will continue to exert its maximum efforts to accelerate the reduction of the number of poor people through a number of innovative programmes on poverty alleviation and social protection.
The inequality between the rich and poor people also displays a decrease. This is evident from the Gini Ratio index that dropped from 0.408 in March 2015 to 0.393 in March 2017. Moreover, the unemployment rate also fell from 5.81 percent in February 2015 to 5.33 percent in February 2017.
The measures to improve the budgeting process are also carried out more comprehensively and take into account various perspectives. In the State Revenues sector, from July 2016 to March 2017, the Government implemented a tax amnesty programme to increase the state revenues, expand taxation databases, and also prepare Indonesia to enter an era of global information disclosure with the application of the Automatic Exchange of Information (AEOI).
On this occasion, I would like to express my gratitude to the House of Representatives for its support in passing Government Regulation in Lieu of Law Number 1 of 2017 on the Access to Financial Information for Taxation Purposes, in the context of the Automatic Exchange of Information. With the approval of the Government Regulation on AEOI, Indonesia has thus acquired a legislative framework comparable to that of more than 100 countries committed to the AEOI. Indonesia will reap the benefits from inter-state taxation information exchange, which will be very useful to enhancing the efforts to extensify our tax revenues.
The Government would also like to express its gratitude for the awareness of the people in joining the tax amnesty programme, which reflects the sense of justice for all the people. Until the conclusion of the programme, the tax amnesty managed to be joined by 973.4 thousand taxpayers with a total repatriated funds amounting to Rp115.9 trillion. Based on the wealth data disclosure, the tax amnesty programme in Indonesia became one of the highest in the world with a total achievement of Rp4,884.2 trillion, consisting of domestic wealth declaration totaling Rp3,700.8 trillion, overseas wealth declaration totaling Rp1,036.7 trillion, and assets repatriation totaling Rp146.7 trillion. Subsequently, this Tax Awareness must be followed by the obligation to pay taxes compliantly in the future. The awareness of the citizens to pay taxes will make the Unitary State of the Republic of Indonesia strong and prosperous.
In the Central Government Expenditures sector, improvements are made by increasing the quality of the expenditures as well as the budget. The increase in expenditures is aimed at financing priority programmes, in particular infrastructure development, in order to increase inter-regional connectivity and support economic growth, in order to absorb labour force and reduce poverty as well as inequality.
A number of output targets in the infrastructure sector have been achieved in the period of 2015-2016. The road construction and national roads capacity expansion totaling a length of 7 thousand kilometres, the construction completion of 4 new airports, as well as the construction of new railways for a distance of 199.6 spoor kilometres are expected to open a wider access to the economy. In addition, the Government also focuses on the provision of housing for low income people through the construction and quality improvement of Low-Cost Apartments (Rumah Susun), Special Housing (Rumah Khusus), and Self-Help Housing (Rumah Swadaya) totaling 210.5 thousand units.
Furthermore, since 2015, the Government has reformed the subsidy policy to make it better targeted and has strengthened the social protection programmes through the scope expansion of the conditional cash assistance for the Family Hope Programme (PKH) that jumped from previously covering 3.5 million families in 2015 to 6 million families by 2017. The Government also gradually builds a synergy between social assistance programmes, by gradually diverting the Rice for Prosperity Food Subsidy (Rastra) to Non-Cash Food Subsidy for 1.4 million beneficiary families in 44 cities.
In order to accelerate the development in the regions, through the Transfers to Regions and the Village Fund, a number of development targets have been successfully augmented. With the Physical Special Allocation Fund (DAK), the Government has increased the peoples accessibility to basic infrastructures, such as access to drinking water increased as many as 386.7 thousand house connections until the end of 2016. In addition, the Government also supports the development of the peoples economy in the regions by raising the quality percentage of provincial roads up to 71.8 percent, regencial/municipal roads up to 61.2 percent, and agricultural irrigation for 895 thousand hectares.
The commitment of the Government to develop the regions starting from the smallest unit of the government can be attested from the achievement of the Village Fund allocation. Since its allocation in 2015, the Village Fund has funded 89.8 thousand kilometres of village roads, 746.4 thousand metres of bridges, access to clean water for 22.1 thousand households, 1.7 thousand units of mooring boat, 14.9 thousand schools for Early Childhood Education Programme (PAUD), 4.1 thousand Village Maternity Clinics (Polindes), 19.5 thousand wells, 3,000 village markets, 108 thousand drainage and irrigation networks, 9.9 thousand Integrated Service Posts (Posyandu), and 941 water retention basins.
Meanwhile, with regard to Budget Financing, over the last few years, the Government has implemented an expansive fiscal policy as it intends to promote a sustainable and just economy for the entire Indonesian people. However, the Government continues to implement this policy in a prudent manner while maintaining fiscal sustainability into the future. The rise in debt financing is directed towards future productive sectors, such as infrastructure development, improvement of the education and health of the people, as well as regional development.
The Government will continue to maintain a prudent and wise debt management policy in order to generate a maximum positive impact of the development, which benefits could be enjoyed by the society at large. Despite the widening expansive development carried out in the period of 2015-2017, the debt ratio and deficit to the GDP have been kept under control; the debt ratio to the GDP has remained under 30 percent and the State Budget deficit has stayed under 3 percent. The Government will also continue to reduce the primary deficit, so that fiscal health and sustainability could always be sustained. The relatively small deficit figure compared to that of other G20 and emerging countries; and the relatively higher Indonesian economic growth, demonstrates that the additional Indonesian debt has resulted in increased scale and productivity of the national economy.
My Fellow Countrymen,
The 2018 Bill on the State Budget is drawn up while still guided by 3 (three) major policies.
First, to promote the optimization of state revenues through an increase of the tax ratio and the optimization of natural resources and state assets management.
Second, to enhance the quality of state expenditures through an increase of the quality of productive capital expenditures, efficiency of non priority expenditures such as goods expenditures and subsidies that must be well-targeted, synergy between social protection programmes; maintenance and refocusing of priority budgets such as for infrastructures, education, health; and strengthen the quality of fiscal decentralization to reduce inequality and improve public services.
Third, a sustainable and efficient financing policy, which is implemented through a deficit and debt ratio control, declining primary balance deficit, and creative financing development, such as through Government-to-Business Cooperation (KPBU) schemes.
In conformity with the medium-term fiscal policy, the theme for the 2018 fiscal policy is Consolidating Fiscal Management in order to Accelerate a Just Economic Growth.
Ladies and Gentlemen,
By taking into account the entire prevailing dynamics and challenges to be addressed, the Government projects the following macroeconomic indicators for 2018 to serve as the basis for drawing up the 2018 Bill on the State Budget.
First, economic growth is targeted to reach 5.4 percent. This optimistic economic growth will be achieved through the support of sustained peoples consumption, increased investment, and improved export and import performance. In 2018, the economic development will be geared towards cultivating the regional economies of Maluku, Papua, Kalimantan, Sulawesi, Bali, and Nusa Tenggara through their increased connectivity with the Islands of Java and Sumatra, which have, for a long time, been the largest contributors to the national economy. Infrastructure improvement and development, both connectivity and energy availability, play a key role in the efforts to achieve an equitable distribution of the economy. Furthermore, the development of the border areas has also been set as a priority of the Government, so they can become gateways to international trade transactions, and so they will not only lift the economy of the border areas but also the national economy altogether.
Second, the inflation rate is projected to be sustained at a level of 3.5 percent, supported by the improvement of the national production capacity, price stability, and a relatively low global commodity prices. Nevertheless, the impact of climate on food commodity prices has become a risk that needs to be considered, since climate is one of the factors that could cause an increase in the inflation rate. Strengthening the policy coordination on the monetary, fiscal, and real sectors will naturally be pursued and improved upon to provide stronger support to ensure domestic price stability.
Third, the rupiah exchange rate is estimated to reach a level of Rp13,500 to the United States dollar. The Government, in collaboration with the Bank of Indonesia and the Financial Services Authority, undertake strengthening endeavours in the financial sector so as to maintain exchange rate stability. The framework for financial market deepening is expected to influence capital inflows to the Indonesian financial market and could reduce pressures on the rupiah exchange rate.
Fourth, the average interest rate of the 3-month Government Treasury Bill in 2018 is assumed to reach 5.3 percent. The market anticipation to cope with the policy of the United States Central Bank and the manageable domestic inflation rate contribute to the efforts in controlling the interest rate of the 3-month Government Treasury Bill.
Fifth, the assumption of the average price of Indonesian crude oil is estimated to reach USD48 per barrel. The increase in energy needs in the context of the global economic recovery constitutes a factor that could influence the increase in oil prices in 2018.
Sixth, the volume of oil and gas that would be ready for sale during 2018 is estimated to reach 2 million barrels equivalent to oil per day, consisting of crude oil production to the tune of 800 thousand barrels per day and natural gas of approximately 1.2 million barrels equivalent to oil per day.
These basic macroeconomic assumptions have been made based on the latest economic condition and take into account future economic projections, so they are expected to better reflect the condition in 2018.
Honourable Members of the House,
The 2018 Bill on the State Budget is drawn up in line with a fiscal policy strategy that is aimed at strengthening fiscal stimulus, reinforce fiscal resilience, and maintain fiscal sustainability with a focus on social justice.
The strategic policies elaborated in the 2018 Bill on the State Budget are as follow:
The 2018 State Expenditures, which are projected to amount to Rp 2,204.4 trillion, will be primarily earmarked to reduce poverty and inequality in order to create justice and social protection for the people; this will be accomplished through increased effectiveness of social protection programmes and more selective spending in education, health, and infrastructure.
The efforts to increase the effectiveness and strengthen social protection programmes will be carried out by widening the targeted scope of beneficiaries of the Family Hope Programme to 10 million families and the scope of assistance beneficiaries of the Healthcare Social Security Agency to 92.4 million people.
In addition, in order to channel better targeted subsidies, the Government diverts the channeling of the Rice for Prosperity (Beras Sejahtera/Rastra) food assistance into non cash food assistance and will also widen its beneficiaries. In order to control inflation and maintain the purchasing power of the people, the government also continues to allocate subsidies for fuel, electricity, fertilizer, Micro Credit Programme (Kredit Usaha Rakyat) and housing interests, and for public services.
With a view to increasing access to education, the Government will continue the policy of granting the Indonesia Smart Card that reaches 19.7 million students, and the granting of Bidikmisi scholarship to 401.5 thousand students, and allocating the school operational assistance that reaches 262.1 thousand public schools and Islamic schools throughout the Homeland.
Still in the effort to increase the quality of human resources, the Government consistently intervenes to reduce the impact of chronic malnutrition that results in the failure to achieve normal height of infants or stunting. We must be mindful that the first thousand days of life will greatly affect a childs growth, in relation to the childs emotional, social and physical abilities, and readiness to learn, innovate and compete. This programme will be highly crucial to improving the quality of Indonesian children in the future, as our investment in the Indonesian human resources.
Distinguished Ladies and Gentlemen,
In order to support the growth of economic centres and the development of inter-regional connectivity, the Government carries out the building of new roads totaling a length of 856 kilometres and the building of irrigation networks totaling 781 kilometres. In addition, several programmes of activity of the Government in the framework of increasing the access to education, health, and other basic facilities, are undertaken, among others, through the building and rehabilitation of 61.2 thousand classrooms, the building of waste water sanitation for 853 thousand household heads, and the construction of 7,062 low-cost apartment units for low-income people.
In carrying out the development, the Government also invites all parties to work collectively be it StateOwned Enterprises, Regional-Owned Enterprises, Regional Governments, or the private sector in the development of creative financing, such as through Governmentto-Business Cooperation (Kerjasama Pemerintah dan Badan Usaha KPBU) or Non Governmentto-Business Cooperation schemes in order to collectively fund infrastructure development.
With a budget allocation for the Transfers to the Regions and the Village Fund amounting to Rp761.1 trillion, the synchronization of planning and budgeting process continues to be undertaken to encourage the effectiveness of development funding. In addition to supporting governmental activities in the Regions, those budgets will be used more selectively for financing development programmes that have become national priorities, primarily through the Special Allocation Fund (Dana Alokasi Khusus/DAK) and the Village Fund (Dana Desa).
The budget for the Transfers to the Regions and the Village Fund are primarily aimed at improving the quality of public services in the regions, creating job opportunities, alleviating poverty, and reducing inter-regional inequality. The Special Allocation Fund for physical use will be directed to catch up on the lag in infrastructures for public services, affirmation to the less developed, border, islands, and transmigration areas. The use of the Village Fund will be strengthened to widen development in the villages, both in terms of facilities and infrastructures, which are performance-based.
Strengthening the management of the Central and Regional Financial relations is also further enhanced by providing technical guidance on Regional Financial Management in around 200 regencies/municipalities throughout the year 2018. In this manner, the equitable understanding and skills of the regional financial managers will create a harmonisation of the Central and Regional Finance.
The financial management, which falls under the responsibility of the Ministries/Institutions and Regional Governments, requires the full support of all parties, so that every rupiah of the peoples money is truly utilized efficiently and for the greatest prosperity of the people. Corruption and squandering of the peoples money should not be tolerated.
Honourable Members of the House,
In order to achieve the aforementioned targets of development, it is necessary to increase the State Revenues in 2018 to the tune of Rp1,878.4 trillion. The Government will take some corrective measures in the taxation sector, including by making tax reforms, improving tax data and information system, widening the tax basis, and preventing tax avoidance practices through the tax information disclosure (Automatic Exchange of Information). Nevertheless, the Government will continue to support the business sector development by providing tax incentives.
Increased revenues from customs and excise will also continue to be optimized through better supervision, and the imposition of goods subject to excise duty, which is followed by an improved service quality at customs offices.
The Non-Tax State Revenues (PNBP) will also be advanced by striking a balance in the utilization of natural resources, profits from state-owned enterprises, and other economic sources from the Non-Tax State Revenues.
Honourable Leaders and Members of the House,
Being guided by the theme of the 2018 fiscal policy and its supporting strategy, the State Revenues in the 2018 Bill on the State Budget are projected to reach Rp1,878.4 trillion. Out of this total amount, the Tax Revenues are projected to reach Rp1,609.4 trillion and the Non-Tax State Revenues are projected to reach Rp267.9 trillion. The Government will do its utmost to achieve the afore-mentioned revenues target by making various corrective measures and utilize all national economic potentials, yet while still maintaining the investment climate and business sector stability.
In the meantime, the State Expenditures in the 2018 Bill on the State Budget are projected to reach Rp2,204.4 trillion, comprising of the Central Government Expenditures amounting to Rp1,443.3 trillion, and the allocation for the Transfer to Regions and Village Fund amounting to Rp761.1 trillion. The Government will continue to take measures in efficiency, more heightened quality of expenditures, and in the achievement of development targets to increase the welfare of the people, alleviate inequality, and realize a just and equitably distributed development.
With the aforementioned planned State Revenues and State Expenditures for 2018, the budget deficit in the 2018 Bill on the State Budget is projected to reach Rp325.9 trillion or equivalent to 2.19 percent of the GDP. The said target of the 2018 budget deficit is lower than its outlook in 2017, which amounted to Rp362.9 trillion or 2.67 percent of the GDP.
The Primary Balance Level in 2018 is also planned to decrease, from an estimated level of minus Rp144.3 trillion in 2017 to minus Rp78.4 trillion.
In order to finance the 2018 budget deficit, the Government will utilize domestic and international sources of financing, in the form of loans/debts, which will be managed prudently and responsibly in accordance with international management standards. The loans will be utilized for productive activities that support the national development programmes, in the sectors of education, health, social protection, infrastructure, as well as defense and security. Moreover, the debt-to-GDP ratio will be sustained below the level regulated in the state finances, managed in a transparent and accountable manner, and with minimized risks posed to economic stability in the present and in the future.
Honourable Speaker, Vice-Speakers, and Members of the House of Representatives and the Regional Representatives Council of the Republic of Indonesia,
My Fellow Countrymen,
I have thus concluded my statement on the major points of the 2018 Bill on the State Budget, which will become materials for the deliberations on the Bill on the State Budget for the 2018 Fiscal Year with the House of Representatives and the Regional Representatives Council. I hope to count on the support of the entire Speakers and Members of the House and the Council to conclude the deliberations on the Bill in a timely manner, in order to be implemented by the Government in carrying out the development in 2018.
May God the Almighty always bestow His blessing upon our steps, to realize the Unitary State of the Republic of Indonesia that is self-sufficient, sovereign, and distinct in personality; as well as just and prosperous for the entire people of Indonesia.
Long Live the Republic of Indonesia!
Long Live the Land of Pancasila!
I thank you.
Wassalamualaikum Warahmatullahi Wabarakatuh,
Om Shanti Shanti Shanti Om,
Jakarta, 16 August 2017
THE PRESIDENT OF THE REPUBLIC OF INDONESIA,