Economic Policies of Presidential Candidates

Putu Rusta Adijaya

Researcher of Economic Affairs at The Indonesian Institute, Center for Public Policy Research

The Indonesian General Elections Commission (Komisi Pemilihan Umum/KPU) has officially announced the pairs for each presidential-vice presidential candidates who had previously registered accompanied by their fanatic supporters, representatives, and even the leaders of the supporting parties. The pair number one is Anies Baswedan – Muhaimin Iskandar (henceforth, AMIN); Prabowo Subianto – Gibran Rakabuming Raka (henceforth, Prabowo-Gibran) is the pair number two, and lastly, the pair number three is Ganjar Pranowo – Mahfud MD (henceforth, Ganjar-Mahfud).

Before determining the pairs’ numbers, these three contenders have issued their respective official documents containing the vision, mission, and programs for the next five-year administration if they are elected officials. AMIN carries the vision of a “Just and Prosperous Indonesia for All”; Prabowo-Gibran pledges a “Together Indonesia Progresses Towards a Golden Indonesia 2045”, and “Towards a Superior Indonesia: Accelerated Action to Realize a Just and Sustainable Maritime Country” is echoed by Ganjar-Mahfud (Adijaya, 2023a).

Adijaya (2023a) states that economic growth is always brought up, whether by the past Indonesian presidential-vice presidential candidates or the present candidates. The reasons are at least twofold. First, it is more politically convenient to state explicit numbers for the growth of the Gross Domestic Product, even though it may sound arbitrary since every politician aims to win the election. 

Secondly, the fundamental determinants of GDP are consumption, investment, government expenditure, and net exports (higher exports than imports), and in that regard, higher economic growth means higher domestic consumption, higher investment, higher government expenditure to provide goods and services, and higher net exports, and vice versa. However improbable may be the number, it is a signal that nudges business leaders and the public on the prospect of the economy. Thus, GDP growth is arguably the ‘Holy Grail’ of the candidates’ promises.

Indonesia is currently experiencing a demographic bonus (the boom of the productive age), which means thatthe voters in the Indonesia 2024 General Election will be dominated by Gen Z and Millennials. Economic issues are also parts of their central topics, such as controlling the prices of necessities (44,1%) and improving the welfare for workers (36,6%), according to The Indonesian Institute in the “Hasil Angket Persepsi Anak Muda Terhadap Pemilu dan Pilkada Serentak Tahun 2024” (“Results of Opinion Poll on Indonesian Young Voters Towards the 2024 Election”) for the October 2023 period. Therefore, it is important to understand the underlying economic policies and promises offered by each candidate pair, for example, regarding taxation, trade, infrastructure, and overcoming income inequality.

Why is taxation important for economic growth? According to Johansson et al. (2008), the objectives of tax systems such as to finance the public expenditures, and promote equity. Taxes are also important in affecting the decision of households to save, and affecting the decisions of entities to create jobs and innovate. These decisions are influenced by tax structures, that are the design and combination of different tax instruments to generate revenues (Johansson et al., 2008).

Trade is also part of the economy that cannot be underestimated. It is proven to bolster economic growth and poverty reduction because the provided merits, such as accelerating productivity growth, improving specialization, and providing goods and services at affordable cost (World Bank, 2023). What about infrastructure? Building infrastructures, whether physical or digital infrastructures, can have multiplier effect, for example, increasing broadband accelerates household livelihood and poverty reduction, electrification increase women labor force participation, and road quality improvement reduces the probability of urbanization, and thus the rural area can advance further (Vagliasindi and Gorgulu, 2023). Regarding income inequality, which is arguably correlated with poverty, unequal economic policies will further deepen these indicators. poverty and income inequality.

The Economic Strategies of AMIN

AMIN proposes a “Just and Prosperous Indonesia for All” as their vision in their official document. It contains eight missions, namely 8 Paths of Change (8 Jalan Perubahan). Moreover, it is salient to note that they are expressing the words ‘fair’ and ‘prosperous’ more often in their document, according to Derry Wijaya, Co-Director of Data and Democracy Research Hub at the Monash University Indonesia in BBC Indonesia (2023).In other words, through 8 Paths of Change, AMIN is proposing to renew and recalibrate the economic policies of President Joko ‘Jokowi’ Widodo’s administration for growth and development.

AMIN’s 1^st Mission explains the economic strategies for the development of the food, energy, and water sectors. One of many strategies in achieving food and energy resilience and water sovereignty, for example, is to build and revitalize irrigation networks, encourage the use of public transportation, and provide water recycling infrastructures, respectively.

Regarding energy resilience, Anies Baswedan has publicly stated numerous times that the proper way to lower fossil fuel dependency is to encourage the public to use public transportation. Anies Baswedan has also criticized the development of the electric vehicles (EVs) ecosystem, especially four-wheel EVs, which are ineffective and only create more bottlenecks on the road (JPNN.com, May 9, 2023). On the development of EVs in Indonesia, Adijaya (2023b) argues about the challenges that may halt its progress. 

For example, the Government of Indonesia has not provided enough supply-side management, such as charging point infrastructures and focusing more on demand-side policies; limited and superficial support from the subnational governments, and off-target incentives. Adijaya (2023b) also states that Indonesia’s EV development is arguably on track due to the combination of command-and-control policies and market-based policies. Nevertheless, Anies Baswedan believes that public transportation electrification is more practical in reducing GHG emissions and fossil fuel dependency.

To elevate energy resilience, AMIN proposes several strategies, including increasing fuel oil supply to a safe level to safeguard its availability and thus allow implementation of careful import planning to get the best price, utilizing Enhanced Oil Recovery (EOR) at the old oil wells, and improving the shares of new and renewable energies. Ensuring fuel oil availability at a ‘safe’ level will maintain the energy consumption and the accessibility for energy, such as fueling the transportation for mobilization. 

When energy consumption and accessibility are sustained, a just energy transition, that is, an equitable progression from fossil fuel energy sources to new and renewable energy sources, will deliberately transpire. Therefore, it will eventually lead to, for example, the electrification of public transportation aimed by AMIN. Alas, increasing the fuel oil supply, even with EOR, is counterproductive and counterintuitive to the effort to expand the shares of new and renewable energies. Three considerations can explain these flaws.

First, what constitutes a ‘safe’ level of fuel oil supply? This generalization is bewildering, even though it can safely be assumed that this fulfillment will try to achieve utility maximization. However, fuel is one of the nonrenewable energy sources, and its reserves are severely limited. Moreover, fuel oil is heavily subsidized in Indonesia, and thus, it will potentially further burden the state budget, taking into account achieving this ‘safe’ level through imports. Therefore, it will potentially jeopardize the state budget deficits. 

Secondly, considering the targeted fuel oil stock has been fulfilled, it creates a recurrence mechanism in fuel consumption and will halt or even prevent the development of new and renewable energy sources. 

Lastly, in AMIN’s 3rd Mission, entitled “Realizing Sustainable Ecological Justice for Future Generations, they stated to “providing incentives for the development of new and renewable energy and disincentives for the nonrenewable energy” to bolster the efforts to reduce the GHG emissions. A thought-provoking question on this mission emerges: will these disincentives for the nonrenewable energy sector be executed before or after fulfilling the ‘safe’ level of fuel supply? The disincentives given before or after reaching that ‘safe’ level will influence the production amount of GHG emissions released into the atmosphere. Nevertheless, these counterproductive and counterintuitive policies will only tangle the threads. 

AMIN’s 2^nd Mission has more layers than the 1^st Mission, and it can arguably be called ‘the core’ regarding economic policies in its official document. The 2^nd Mission explains eighteen thematic programs, ranging from poverty alleviation, fiscal policies (including taxation), economic equality (including income inequality and infrastructure), and so on. Regarding free trade, AMIN mentions it more in the 7^th Mission.

AMIN is targeting a poverty rate of 4%-5% in 2029, which is equivalent to a decrease of 57.26%-46.58% or a decrease of 5.36 percentage points-4.36 percentage points from a 9.36% in March 2023, and achieving ~0% extreme poverty in 2026. AMIN contemplates several ways to achieve these targets, such as improving the poverty data accuracy, digitalizing the poverty database, digitalizing the monitoring systems, and evaluating poverty alleviation programs. 

AMIN also proposes to improve the social assistance programs (Direct Cash Assistance, Family Hope Program) and also the targeted communities that will receive the programs; and providing incentives for jobs creation and other productive economic activities. This target of poverty rate may face strong headwinds since the average percentage of poor population in Indonesia from 2004 to 2023 is 12.4% according to the data from Computation and Analysis of Macro Poverty of Indonesia 2023 (2023) by Statistics Indonesia.

Regarding taxation, AMIN is aiming to achieve the tax ratio to 13%-16% in 2029 from 10.4% in 2022, ensuring tax incentives such as tax allowance and tax holiday to generate optimal economic value with minimum fiscal risks. The target outcome will only become a promise if there is no improvement in tax administration and tax collection and the taxpayers’ compliance.

Whereas on income inequality, AMIN is targeting 0.36-0.37 of the Gini Index in 2029. To accomplish it, one of the programs are to establish leading cities, which are at the same level as Jakarta, to reduce disparities between regions. According to Nirwono Yoga, an expert in city planning, on Detik.com (December 23, 2023), it takes decades to develop a city at the level of Jakarta. A city also needs approximately IDR100 trillion in the local government budget akin to the local government budget of Jakarta. Therefore, time and budget constraints become serious challenges. The challenges also include cultures and traditions since different regions have numerous cultures and ancient traditions that are incorporated into the communities’ daily lives.

Regarding infrastructure, AMIN wants to improve the logistics performance index (LPI) from 3.0 in 2023 to 3.5 in 2029 and reduce the logistics cost ratio to GDP from 23.8% in 2020 to 16%-18% in 2029. Moreover, they also aim to build an integrated logistics information system to ensure governance and the efficient movement of goods and people across modes of transportation through technological approaches, policies, and institutions. 

AMIN also wants to strengthen bilateral and multilateral cooperation including agreeing to Free Trade Agreements (FTA) and Preferential Trade Agreements (PTA) to increase Indonesia’s products competitiveness and attractiveness. Free trades are not only boosting innovation, providing intellectual property rights protection, but also lowering and even eliminating tariffs to overcome economic barriers (Washington International Trade Association, 2023).

Furthermore, on the economic growth, AMIN aims to target 5.5%-6.5% as the average growth of GDP in 2025-2029, in which the lower bound of 5.5% is 0.5 percentage points higher relative to the 5% GDP growth of Indonesia in 2024 by the reports of International Monetary Fund’s (IMF) World Economic Outlook October 2023 and Asian Development Bank’s (ADB) Asian Development Outlook September 2023 (Adijaya, 2023a). The average GDP growth is explicitly stated in AMIN’s 2^nd Mission: “Encourage budget efficiency by prioritizing productive spending and suppressing non-productive spending to produce wide fiscal space and average GDP growth of 5.5%-6.5% per year (2025-2029)”. 

Although AMIN is eagerly willing to discontinue Jokowinomics, some of its economic policies mentioned in the 1^st and 2^nd Mission mirror Jokowi’s, for example, objectifying the opportunity for carbon trading and carbon exchange, social assistance programs, and jobs creation programs.

The Economic Strategies of Prabowo-Gibran

Asta Cita is the name of the vision by Prabowo-Gibran in their official document. The benchmark of Asta Cita is following the principles of Pancasila economics, which Prabowo Subianto stated that it combines the best essence of both capitalists and socialist economic systems. According to Derry Wijaya in BBC Indonesia (2023), Prabowo-Gibran often uses the words ‘build’, ‘strong’, ‘state’, and ‘society’. The word ‘command’ also appears, and thus, Prabowo-Gibran will execute their economic policies through command-and-control policies (Adijaya, 2023a). In other words, Prabowo-Gibran is wholeheartedly willing to continue Jokowinomics as opposed to AMIN’s economic policies.

In their 2^nd Mission, Prabowo-Gibran is explaining quite well about the food self-sufficiency programs, which include the major ongoing economic programs under President Jokowi’s administration, such as Agrarian reform, the State-Owned Enterprises food holding, fertilizer industry, empowering and bolstering the responsibility of BULOG, an Indonesia’s logistics affairs agency, and the National Food Agency. They also aim to continue and improve the food estate program in a sustainable manner, especially for rice, corn, cassava, soybeans, and sugar cane. However, the food estate development under the current president’s administration is facing criticism related to food and climate crises. 

Greenpeace Indonesia (2023) argues that forest clearing for food estate in Gunung Mas district, Center Kalimantan, does not produced significant amount of cassavas but erosion and flooding that affect downstream village; moreover, Dayak tribe, the indigenous people in Kalimantan, lost their access for food gathering in their territory. The drainage system of the food estate also causes huge carbon liberation to the atmosphere and also vulnerable to fire hazard (Greenpeace, 2023). Therefore, reevaluation and recalibration of the food estate program are important to measure the large-scale impacts of the food estate on the varieties of foods, food supply, food and fertilizer prices, participation of indigenous people, environmental sustainability, climate change, and so on. 

In the energy program, Prabowo-Gibran aims to make Indonesia as the super power country of green energy, which includes renewable energies and bioenergy. They also want to revise all regulations that hinder investment in the new and renewable energy sector, and improve the incentive schemes to encourage discovery of resource reserves. 

On the other hand, Prabowo-Gibran also wants to establish petroleum refineries, ethanol plants, and gas receiving terminal and natural gas transmission or distribution network provided by either State-Owned Enterprises (SOEs) or private sectors to achieve energy self-sufficiency. Natural gas is one of the fossil fuels and approximately 13.92% of Indonesia’s primary energy mix is gas (Minister of Energy and Mineral Resources, May 23, 2023). This effort is contradictory to their target to make Indonesia as the superpower in green energy because Indonesia will still be reliant on natural gas.

Besides that, U.S. Energy Information Administration (2022) states that methane (CH₄) is the largest component of natural gas. Methane is also one of the dangerous greenhouse gases, which is thirtyfold stronger than carbon dioxide (CO₂) and contributes around 10%-25% of global warming (UCAR, n.d.). Therefore, the policy effort to establish natural gas transmission can jeopardize the effort toward green energy.

Another economic policy that is contradictory to the effort of net zero emission is stated in Prabowo-Gibran’s 6^thMission. In the 6^th Mission, Prabowo-Gibran wants to continue the energy subsidy program (fuel oil, LPG, electricity) for society in need. There are at least two flaws in this policy. First, the energy subsidy program, especially for fossil fuels, will burden the ongoing energy transition. Second, there are more disadvantages rather than benefits in Indonesia’s energy subsidy program. The Oil and Natural Gas Downstream Regulatory Agency (BPH Migas) reported that more than 1 million kiloliters of subsidized solar is misappropriated, costing Indonesia around IDR17 billion in 2022 (CNBC Indonesia, January 3, 2023). There are 786 cases of fuel oil misappropriation in 2022 with the estimated loss of IDR200 billion according to the Indonesian National Police (CNBC Indonesia, January 3, 2023).

Regarding to taxation, Prabowo-Gibran wants to implement bureaucracy reform which included tax reform in the 7^th Asta Cita, for example, developing Single Identity Number (SIN) to facilitate tax tracking, raising tax ratio, providing two-year tax exemption for newly established and officially registered MSMEs, extensification and intensification of tax reform, and removing VAT for all types of books.

On income inequality and infrastructure, Prabowo-Gibran is following the National Long Term Development Plan 2025-2045 target to reduce inequality through building connecting infrastructure, such as road, airport, port, and railway networks. They also explained specifically about infrastructure in the 3^rd Mission, such as build irrigation for flood prevention, build digital and technology infrastructure evenly across Indonesia, develop ports in the East of Indonesia, synergize the development of transportation networks (land, sea, and air).

Regarding economic growth, Prabowo-Gibran aims for about 6%-7% GDP growth per year which is the number needed to reach the targets of the 2045 Golden Indonesia. However, this number is ambitious since Indonesia’s average economic growth is only forecasted to be about 5% in 2024 and quite lower after 2024. The optimistic growth has not considered the lurking risks, uncertainties, and even the potential escalation of the current conflicts whether Russia-Ukraine or Israel-Hamas that are not showing the sign of completion.

Prabowo-Gibran also promotes the development of green economy and blue economy, which are parts of Jokowinomics. They aim to phase out the coal-fired power plant since they are targeting to accelerate decarbonization to achieve net zero emission. Climate scientists have provided scientific evidence that the only way to achieve the targeted temperature on the Paris Agreement is to phase out the coal-fired power plant and stop its establishment. 

One of many indicators that will ensure the early retirement of coal-fired power plants is political will. Alas, there will be a massive resistance from the fossil fuel tycoons. Another setback is ensuring the phase out plan that also aligns with just energy transitions. It is important to phase out the coal-fired power plant without jeopardizing the livelihood of the labor and the communities around the vicinity.

The Economic Strategies of Ganjar-Mahfud

Ganjar-Mahfud has quite similar approaches to AMIN and Prabowo-Gibran. The word ‘digital’ and ‘fast’, which often appeared in the official documents (Derry Wijaya on BBC Indonesia, 2023), are becoming their main agendas in achieving economic growth and development. They are proposing “Towards a Superior Indonesia: Fast Action to Realize a Just and Sustainable Maritime Country” as their vision. Ganjar-Mahfud is arguably willing to continue Jokowinomics, but not as fully as Prabowo-Gibran.

It is quite interesting that the words which correlated with fossil fuels, such as batu bara (coal), minyak (fuel or oil), gas (natural gas), and even BBM (fuel oil) are not found in the Ganjar-Mahfud’s official document. They mentioned ‘energy transition’ quite often in the document. Regarding energy transition, they propose to increase the new and renewable energy in the primary energy mix to 25%-30% in 2029. Ganjar-Mahfud also wants to establish energy independent villages that use renewable energy as the main energy sources. However, the 25%-30% of new and renewable energy in 2029 is ambitious and almost improbable since the new and renewable energy mix in 2022 is only 12.3% from the target of 23% in 2025. 

Regarding economic growth, Ganjar-Mahfud also aims for a rather ambitious economic growth similar to Prabowo-Gibran, that is 7%, akin to the promise of Jokowi in the 2014 General Election. To achieve these superior economic growth, Ganjar Mahfud is targeting to utilize inclusive strategies for Micro, Small, and Medium Enterprises (MSMEs), developing new businesses, bolstering the digital economy, and cultivating green and blue economy. This 7% economic growth target is 40% higher compared to the 5% forecast target in 2024 by the World Bank and International Monetary Fund (Adijaya, 2023a). Similar considerations in Prabowo-Gibran also apply in the case of Ganjar-Mahfud’s 7% target of economic growth, in which they have not taken into account the potential ‘black swan’ events or the unpredictable and highly impacted events in the future.

Beside economic growth of 7%, Ganjar-Mahfud also aims to create 17 million new jobs; a minimum of 35% bank credits for MSMEs, cooperatives, and startups; and 7.5%-8% growth in the manufacturing industry which stated in the 3^rd Mission. Moreover, in the 1^st Mission, they also aim for 0% extreme poverty and a poverty rate of 2.5%. Ganjar-Mahfud targets the research and development expenditure to 1% of GDP in 2029 by encouraging synergy between government and private funding through budget ceiling efficiency and simplification of philanthropy funding regulations as well as tax incentives or subsidies for the private sector.

Since Ganjar-Mahfud echoes digital development in the official documents and public appearance, one program to establish competitive digital ecosystem is through increasing the share of domestic digital industry in the digitalization process, including the creation of a national application; increasing the role of the perpetrator domestic businesses and products in digital economic activities including e-commerce to support the development of local MSMEs.

Regarding taxation, Ganjar-Mahfud only mentioned tax incentives three times and did not elaborate further about them, but the tax incentives will be provided for startup, R&D, and fiscal policy in developing Papua. While on the infrastructure, Ganjar-Mahfud wants to build infrastructures for creative economy, continuing the equality development and improving value added of infrastructures, providing 40% of business premises for micro and small businesses around public spaces, digital infrastructures, and also building disability friendly infrastructures. Regarding trade, Ganjar-Mahfud aims to optimize the Sea Lines of Communication (SLoc) and Archipelagic Sea Channel Indonesia (ALKI) as an international trade route.

To conclude, based on the analysis of the economic policies of the candidates elaborated above, some candidates have contradictory and counterintuitive policies to achieve energy resilience. For example, regarding a just energy transition, it is a must to reach net zero emissions, therefore, the coal-fired power plants are urgent to be phased out. In general, the three pairs of presidential and vice-presidential candidates arguably mention their programs and policies related to taxation, trade, income inequality, and infrastructures. Alas, these candidates’ policies are arguably similar to each other and also tend to be normative.

References

Reports/Papers

Adijaya, Putu Rusta. (2023a). “An Analysis of the Environmental and Economic Vision-Mission of the 2024 Presidential-Vice Presidential Candidate Pairs”. The Indonesian Update, Volume XVII, No.11 – November, December 2023. The Indonesian Institute.

Adijaya, Putu Rusta. (2023b). “Evaluation of the Electric Vehicle Policy Framework in Indonesia in 2023”. Indonesia Report 2023. The Indonesian Institute.

Greenpeace Indonesia. (2023). Indonesia’s Food Estate Program: Feeding the Climate Crisis.

Johansson, Åsa; Heady, Christopher; Arnold, Jens; Brys Bert; Vartia, Laura. (2008). “Taxation and Economic Growth”. OECD Economics Department Working Papers No. 620.

Statistics Indonesia. (2023). Computation and Analysis of Macro Poverty of Indonesia 2023.

The Indonesian Institute, Center for Public Policy Research (TII). Hasil Angket Persepsi Anak Muda Terhadap Pemilu dan Pilkada Serentak Tahun 2024 (Results of Opinion Poll on Indonesian Young Voters Towards the 2024 Elections). Period of October 2023. https://www.theindonesianinstitute.com/hasil-angket-persepsi-anak-muda-terhadap-pemilu-dan-pilkada-serentak-tahun-2024-periode-oktober-2023.

Websites

BBC Indonesia. (November 13, 2023).  https://www.bbc.com/indonesia/indonesia-67376682 . Accessed on 24 December 2023, at 02.00 PM.

CNBC Indonesia. (January 3, 2023). https://www.cnbcindonesia.com/news/20230103155119-4-402467/14-juta-kl-bbm-subsidi-diselewengkan-negara-rugi-miliaran. Accessed on 24 December 2023, at 03.00 PM.

JPNN.com. (May 9, 2023). https://www.jpnn.com/news/pedas-anies-baswedan-sebut-subsidi-mobil-listrik-malah-bikin-macet. Accessed on 24 December 2023, at 03.00 PM.

Detik.com. (December 23, 2023). https://www.detik.com/properti/berita/d-7105457/butuh-biaya-berapa-membuat-kota-se-level-jakarta-seperti-rencana-cak-imin. Accessed on 27 December 2023, at 03.00 PM.

Minister of Energy and Mineral Resources. (May 23, 2023). https://www.esdm.go.id/id/media-center/arsip-berita/kementerian-esdm-terbitkan-heesi-2022#:~:text=Pada%20tahun%202022%2C%20sektor%20industri,sektor%20lainnya%200%2C99%25. Accessed on 27 December 2023, at 04.00 PM.

UCAR. n.d. https://scied.ucar.edu/learning-zone/how-climate-works/some-greenhouse-gases-are-stronger-others. Accessed on 27 December 2023, at 04.00 PM.

Vagliasindi, Maria and Gorgulu, Nisan. 2023. https://blogs.worldbank.org/ppps/beyond-brick-and-mortar-key-lessons-learned-impact-infrastructure-economic-development. Accessed on 27 December 2023, at 03.00 PM.

Washington International Trade Association. 2023. https://www.wita.org/blogs/free-trade-agreements-prosperity/. Accessed on 27 December 2023, at 05.00 PM.

World Bank. (2023). https://www.worldbank.org/en/topic/trade/brief/trade-has-been-a-powerful-driver-of-economic-development-and-poverty-reduction. Accessed on 27 December 2023, at 03.00 PM.