Indonesia's Prabowo has made no decision on energy subsidies, says aide

[February 16, 2024]  By Ananda Teresia

JAKARTA (Reuters) -Indonesia's likely new president Prabowo Subianto has been advised to improve budget efficiency to make way for spending priorities, but has not made a decision on adjusting sensitive energy subsidies, a senior member of his team said on Friday.

Prabowo has received a suggestion to review costly fuel subsidies, which reached 500 trillion rupiah ($32 billion) last year, to ensure only the poor would benefit, but it was unclear what he would do, the vice-chair of his campaign team Eddy Soeparno told Reuters.

"I cannot say (Prabowo) has agreed, but the advice from a team of experts is for him to make the state budget more efficient," Eddy told Reuters, after media reported Prabowo would target subsidies as his first move upon assuming office in October.

Prabowo declared victory after unofficial "quick counts" by independent pollsters - which have proven to be accurate in past elections - showed the former special forces commander clinching about 58% of votes in Wednesday's presidential election.

Once the result is officially confirmed, the new government will take office in October.

Indonesia currently subsidises certain types of fuel and electricity tariffs, a policy that has kept inflation low but has exposed state coffers to swings in global oil prices.

Prabowo's campaign promises and comments on taking on more public debt have sparked concerns among rating agencies and economists about the country's track record of fiscal discipline.

"We believe medium-term fiscal risks have risen, given some of Prabowo's costly campaign pledges, including a free lunch programme amounting to around 2% of GDP, and his statements that Indonesia could sustain a significantly higher government debt/GDP ratio," said Thomas Rookmaaker, head of Asia-Pacific sovereigns at Fitch Ratings.

Prabowo's signature free school lunch and milk could cost the government 450 trillion rupiah per year, his team has estimated.

The programme would start in stages before it is expected to fully reach 82 million Indonesian school children in 2029, Budisatrio Djiwandono, Prabowo's nephew and member of his campaign team, clarified on Friday.

FISCAL MANAGEMENT CONCERNS

The presumed new president has also pledged to continue outgoing President Joko Widodo's key legacy project of moving the capital to a still under-construction city named Nusantara in the jungles of Borneo, which is expected to cost $32 billion in total.

Indonesian Defence Minister and presidential candidate Prabowo Subianto salutes to supporters after delivering a speech at Jakarta Convention Center, during a campaign rally in Jakarta, Indonesia, February 2, 2024. REUTERS/Willy Kurniawan/File Photo

Concerns about Prabowo's fiscal management have fuelled speculation in the financial markets about who he would pick as his finance minister to fill the shoes of highly-regarded incumbent Sri Mulyani Indrawati.

Prabowo has yet to discuss his cabinet picks, his aide Nusron Wahid said. However, Ahmad Muzani, another aide, said politicians in Prabowo's parliamentary alliance have begun to reach out to parties backing rival presidential contenders Anies Baswedan and Ganjar Pranowo to potentially widen the coalition.

"Prabowo asked us to keep communicating with chiefs of parties that don't back him," Muzani, secretary general of Prabowo's party Gerindra, told reporters.

Four parties in Prabowo's coalition won 42.85% of parliamentary votes in the election, while those backing Anies got 29.09% and Ganjar got 20.12%, according to quick counts by pollster Litbang Kompas, indicating Prabowo would need to convince some of his rivals to jump ship if he wants to clinch a majority in parliament.

Widening the coalition could mean more complications in determining cabinet ministers, as allies typically demand representation in government.

For the financial markets, Prabowo's choice of finance chief will be closely monitored.

"Going forward, as the administration aims for high growth, the possibility of the new finance minister being someone advocating for aggressive expansion of the fiscal policy cannot be ruled out," said Ryota Abe, an economist with Sumitomo Mitsui Banking Corporation.

($1 = 15,645.0000 rupiah)

(Reporting by Ananda Teresia and Stefanno Sulaiman; Writing by Gayatri Suroyo; Editing by Raju Gopalakrishnan)

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