In this webinar, Dr Muhamad Chatib Basri provided insights into Indonesia’s efforts to recover from the COVID-19 pandemic and how it could be further overcome through administrative tax reforms and expenditures restructuring. Mr Richard Borsuk, our discussant, also provided his viewpoints in regard to Indonesia’s economic recovery through taxation and other fiscal policies implemented.
INDONESIA STUDIES PROGRAMME WEBINAR
Monday, 6 December 2021 – ISEAS – Yusof Ishak Institute, with the support of The Rajawali Foundation, invited Dr Muhamad Chatib Basri (Former Minister of Finance of Indonesia, Chairman of PT Bank Mandiri Tbk and PT XL-Axiata) to speak in a webinar titled “Indonesia’s Battle to Overcome Its Fiscal Challenges”. Mr Richard Borsuk (Managing Director, Researching Southeast Asia Pte Ltd, and Adjunct Senior Fellow of S. Rajaratnam School of International Studies (RSIS)) was also invited as a discussant for this webinar. Dr Siwage Dharma Negara (Senior Fellow and Co-Coordinator of Indonesia Studies Programme, ISEAS – Yusof Ishak Institute) moderated the webinar. Dr Muhamad Chatib Basri shared his book chapter’s findings on Indonesia’s fiscal challenges and how the country seeks to resolve these challenges with key policy reforms. Mr Richard Borsuk also gave his perspective toward the presentation and discussed the budget deficit, tax revenue and tax administration reforms.
Dr Basri began by illustrating the current COVID-19 situation in Indonesia, stating that vaccination had aided in controlling and reducing the COVID-19 infection rate as well as fatality rate. As of November 2021, Indonesia had vaccinated at least 40% of its population, which is around 9 million of its population. Dr Basri believed that Indonesia would need a longer runway to reach at least 80% vaccination rate, primarily due to its large population size and other geographical challenges. He continued to elaborate on how a high vaccination rate had aided in bringing down the infection rate and allowing ease in mobility restrictions, bringing about economic growth. Dr Basri believed that the country economic recovery strategy should be focused on controlling the COVID-19 pandemic within the country. This would generate the avenue for economic activities to return to normalcy.
Dr Basri proceeded to briefly describe the impacts of COVID-19 on Indonesia’s economy, elaborating how COVID-19 had disproportionately affected the lower-income and vulnerable groups. Through his research, a correlation was observed between the available saving ratio of the various income groups with the receptiveness of staying at home during the lockdown. People were thus more willing to stay at home if they had a stable amount of monthly savings, a typical characteristic of the middle-income group brought about by having a stable job. As such, he believed that the notion of lockdown was biased toward the middle income unless the government provided social assistance for the lower-income groups. By providing cash transfers, people are, in a way, compensated to stay at home, bringing about more acceptance toward lockdown compliance. Cash transfer for the lower-income also helps boost demands for consumption, which drives the cyclic cycle of having more private sector investment to support the increased demand. Having continuous fiscal stimulus is thus necessary to jump-start these critical initiatives in recovering the economy.
Dr Basri also touched base on how Indonesia could finance the budget deficit, highlighting a key problem of having relatively low tax revenue over the past few decades. In fact, through his research, he believed that implementing administrative reform within Indonesia’s taxation offices could help resolve this pertaining issue. Existing manpower constraints and systematic procedures would need to be reviewed to improve the tax collection procedures for companies. With a better system, tax revenue would naturally increase. Apart from that, Dr Basri also suggested other strategies, including the need to improve budget spending quality, generate green fiscal stimulus, maintain burden-sharing with Bank Indonesia as well as ensure an effective exit plan for the country in the post-pandemic world.
Mr Richard Borsuk continued and presented his point of view towards key points in Dr Basri’s presentation. He stated that during the New Order period, the government always reported a balanced budget, when there was usually a deficit, which was obscured by considering foreign aid as “development revenue”. This changed after the fall of the New Order, allowing the budget to be in deficit. He also agreed with Dr Basri’s point on tax revenue, highlighting that the tax-to-GDP ratio for Indonesia is still very low, and administrative reforms would be necessary to increase the total tax collection. Improving the efficiency of the tax collection offices by reducing corruption and bureaucratic inefficiency should be emphasized to push up Indonesia’s tax revenue. He also suggested that there should be increased focus on attracting private investment in the infrastructure sector, and the country would need to relook into budget allocation for the various ministries in order to ensure quality spending.
The webinar drew an audience of 77 participants from both Singapore and abroad. The panel then discussed a range of topics during the Question-and-Answer segment, which included topics such as the effects of social safety net schemes, the chances of increasing tax revenue level in Indonesia, the possibility of inflation due to fiscal stimulus, the effects of rising commodity prices, the notion of green fiscal stimulus as well as the need to have more compliance toward tax collection by large companies. This session concluded with statements from the speakers on the prospects for the Omnibus law creating private investment opportunities and boosting economic recovery in Indonesia.