All who heard, - both supporters and critics alike, - had to agree that President Yudhoyono gave an impressive State Address to the Plenary Session of Parliament on 16 August, on the eve of Indonesia’s Independence Day. Delivered in a most convincing manner, the President’s 94 minutes’ speech was punctuated by almost incessant applause from the floor. 

Earlier, members of the opposition PDIP party had threatened to interrupt the speech if the address given they considered “normative”. But the president made sure that he gave no one a chance to interrupt as he read his speech in fast staccato as fired from a machine gun.  

The Address contained highlights of achievements made in the past year as well as Budget Proposals for 2007 to implement government’s policy forward. 

First of all, the President reconfirmed that, having passed crisis after crisis, Indonesia is convinced that “the structure and form of the Unitary State of the Republic of Indonesia , based on Pancasila, the Five Principles of National Ideology, is an accurate and final choice”. This statement received loud applause from Members of Parliament.   

Conflicts and quarrels must be brought to an end, President Yudhoyono continued. “We must be grateful that in this past year, threats and security disturbances in various regions have abated. While, in former areas of conflict, such as in Poso, the Moluccas and North Moluccas , people today enjoy a life that is much safer and more peaceful.” Similarly, a situation of security and peace in Aceh has been realized (more applause). “We have also recorded positive progress in bringing about a better (political) climate in Papua. Not so long ago, regional elections for district heads in Papua and in West Irian Jaya, were successfully conducted in a democratic, safe and peaceful manner. 

Achievements in Combat against Terrorism, Corruption and Narcotics 

Indonesia has also recorded considerable progress in the combat against terrorism. The Police have succeeded to dismantle the network of, thereby disabling terror activities by (Malaysian) Dr. Azhari. In spite of this success, security personnel continue to work hard to eradicate terrorism from the homeland. In the combat against terrorism, Indonesia continues to adhere to the principles of law and respect for human rights, the President affirmed. “The eradication of terrorism bears no relation to any particular religion or identity, since crime and terrorism are committed by groups who adhere to varying religions and identities.” 

As to developing Indonesia, these efforts may not be separated from actions to create a just and democratic society. Within this context, therefore, Indonesia is determined to develop and uphold the law, eradicate corruption and consolidate democracy. By accelerating the eradication of corruption, a culture of fear to commit corruption has emerged.  Meanwhile, Indonesia has ratified the UN Convention against Corruption, and will continue to increase regional and international cooperation. 

The Prevention of Corruption is further contained in three Bills, namely the Bill on Public Services, the Bill on State Administration and the Bill on Ethics of State Officials, which are  before Parliament for deliberations in 2007. 

The address further elaborated on the Combat against Narcotics, Human Rights, on Regional Elections, Foreign Policy, Social Welfare, Poverty Alleviation, Education, Health and the Economy. 

Outstanding Youths in Physics, Chemistry, the Arts and Sports 

Underlining achievements made in Education, here the President departed from the norm, by mentioning names of two individual students. These are Jonathan Pradana Mailoa, who earned the accolade as The Absolute Winner in the 2006 International Physics Olympiad held in , thereby breaking the dominance of Chinese students and defeating his competitors from the . Another student, Rudolf Surya Bonay, from Papua succeeded in winning the First Step to Nobel Prize in the field of Chemistry. In all, this year Indonesian students managed to win 28 gold medals in science, mathematics, the arts and sports. (These achievements defied the perception that education in Indonesia is far below standard. Ed) 

Reduced Number of Poor (?) 

On the subject of Social Welfare, data presented by the President later elicited criticism (see article on the Economy below). “We are on the path towards achieving the objectives of the Millennium Development Goals (MDG’s) in 2015”, said the President. “We have succeeded to reduce the level of poverty from 23.4 percent in 1999 to 16 percent in 2005”. But, this is still far from the objectives that Indonesia wishes to achieve, the President continued, since the economic growth that Indonesia strives for must guarantee the realization that poverty is in fact reduced. “Development will be in vain when we are not able to lift our people from the abyss of poverty and backwardness. Therefore, the Government accords high priority and provides a substantial budget for the poor that they have the opportunity to enjoy education, improve health and the quality of the environment”, confirmed president Yudhoyono.   

Macro-Economy Stable and Improving 

Shifting to the subject of the Economy, Yudhoyono said that the stable Rupiah exchange rate has supported government’s efforts to reduce inflation rate. Until July 2006, inflation rate was 3.3 percent, which was far lower compared to the same period last year that recorded 5.9 percent. 

On the whole, the government’s inflation target of 8.0 percent in 2006 is projected to be achievable. In line with this, and still monitoring development of international interest rates, Bank of Indonesia has begun to reduce interest rates prudently, which is expected to spur the growth of investments through improved banking intermediation, the restoration of market confidence, and decrease in loan costs. 

Nevertheless, although Indonesia’s macro economy demonstrated a meaningful improvement, the Government is yet fully aware that efforts to improve the welfare of the people have yet to reach the expected level, because of the immense and complex problems faced, concedes the Leader.

Economic growth in 2005 reached 5.6 percent, the President reported, although initially expected to reach 6 percent. The trend of the weakening economy was still apparent during the first trimester of this year, however, a positive recovery was made in the second trimester. In this context, the Government will continue to manage the weakening of the economy through measured fiscal expansion, monetary easing by the central bank, and the implementation of other structural policies, including the package policy for the improvement of the investment climate, acceleration of infrastructure development, and reform of the financial sector.

Further economic growth in the first trimester of 2006 was recorded at 4.7 percent. In the second trimester, this figure improved to 5.2 percent, higher than anyone had projected. On the whole, economic growth in the first semester of 2006 reached almost 5 percent. The improvement of the economy in the second trimester augurs well for the consolidation and strengthening of economic activities to become more stable in the second semester of 2006, thereby building a more robust foundation for higher economic growth next year, said the President.

On the subject of Unemployment, this has started to decrease from 11.2 percent in November 2005 to 10.4 percent at the beginning of 2006. This decrease in the level of unemployment occurred for the very first time, having the last few years experienced an increase. 

The Proposed 2007 Budget, Policies and Priority Programmes 

Hereupon, the President laid out to the House the 2007 Draft State Budget (RAPBN): next year’s Budget is based on the assumption that the national economy will improve and Indonesia’s macro-economy will remain stable, said the President. These are reflected in improved basic assumptions, which are as follows: 

Indonesia’s Economy in 2007 is expected to grow at 6.3 percent (from 5.8% in the 2006 Budget); Inflation rate declines to 6.5 percent (from 8% this year); the 3-month of SBI interest rate will be 8.5 percent (down from 12% this year); and the exchange rate of the Rupiah will remain  at  Rp 9,300 to the US Dollar; while world crude oil prices will hover around US$65 per barrel, and Indonesia’s oil lift will reach 1 million barrels per day. 

Furthermore, the programmes and budgeting of the 2007 Draft State Budget are based on the 2007 Government Work Plan (RKP) that aim to Increase Employment Opportunities and Alleviate Poverty within the context of the overall Improvement of the public's general  Welfare. 

For this purpose, the 2007 Government Work Plan, comprises nine work programme priorities. These are : (1),the alleviation of poverty. (2), increased employment opportunities, investments, and exports. (3), the revitalization of agriculture, fisheries, forestry, and the rural sectors. (4), increase in accessibility to and the quality of education and health. (5), improved law enforcement and human rights, the eradication of corruption, and the reform of the bureaucracy; (6), the strengthening of defense capabilities, the strengthening of security and law and order, and the settlement of conflicts; (7), rehabilitation and reconstruction of stricken areas in Nanggroe Aceh Darussalam (NAD), Nias, the Yogyakarta Special Region and Central Java, and the mitigation of disasters. (8), the acceleration of infrastructures development, and (9), the development of border regions and isolated areas. 

And, since economic development must go hand in hand with equitable distribution with the main purpose to reduce poverty, there are special programmes to expand and integrate poverty alleviation programmes based on community participation in rural and urban areas.

Boosting alternative energy, creating employment opportunities 

On the supply of energy, the President said that the development of alternative energies has become an important option, not only to reduce dependence on oil-based energy (BBM) whose price continues to soar, but at the same time also to solve the twin problems of poverty and unemployment, as well as improve the environment. The over-dependence on BBM as the main source of energy, therefore, also puts at risk state finances, in no small measure, as government subsidies continues to swell.

As Indonesia possesses various sources of alternative energy in quite a large amount, such as gas, coal, hydropower, geothermal, solar power, and the like, investments in this field  need to be developed. Since the Government can not possibly, by itself, invest in this field, considering its quite high cost, the Government encourages the both the domestic and international private sector to actively invest in alternative energy. 

The Government is also drawing up measures to develop vegetable-based alternative energy or biofuel. This National Programme was set in motion this year through the development of energy using as basic materials: palm oil, sugarcane, cassava, and castor oil plant. For a number of regions, especially those that are remote and underdeveloped, Indonesia plans to carry out a program of energy-independent villages, based on the use of castor oil. Therefore, those villages are expected to be able to meet their energy needs, without having to depend on diesel fuel and kerosene. In the medium term, this energy policy is anticipated to be able to create new employment opportunities for around 3 to 5 million people. In this manner, this measure will also reduce the figure of unemployment and poverty, as well as reducing BBM subsidy in a significant way.

Improving Business Climate through Tax Reform 

The improvement of the investment climate was initiated with the issuance of the investment policy package in February 2006. The package is intended to reduce business costs and improve business certainty through improvement of the regulation, services, and simplification of procedures and bureaucracy. The taxation reform plays a key role in the improvement of the investment climate. The effort to perfect the system of taxation administration, among others, are the improvement of the services functions, including improvement of the management at tax offices, simplification of the Annual Notification Letter, intensification of compliance and supervision, and also the modernization of the supporting function. In order to carry out a more comprehensive taxation reform, I hope that we can immediately conclude deliberations over three Bills on Taxation, namely the General Rules for Taxation and Procedures for Taxation, Income Tax, and Value Added Tax for Goods and Services, and Sales Tax on Luxury Items. Within these three Bills are stipulated provisions on reducing tax burden, improving compliance and more equitable treatment between taxpayers and tax officers. 

Therefore, through Budget allocations that are more focused, and through a number of structural policy changes to improve the business climate and fiscal stimuli the Government hopes to expand employment opportunities that will in the end reduce the large number of open unemployment by the end of 2007. 

Improving the Quality of Education and Health

In this context, also Education and Health will receive increased allocation in the medium as well as in the long term program. In 2007, education will be allocated 10.3% of total government spending.  

Infrastructure spending will increase by 31% compared to the 2006 Budget; while Government’s commitment to improve Good governance through Bureaucratic Reform and Law Enforcement will require additional outlay, especially to improve public sector salaries. 

Whereas, through Regional Autonomy, Budget spent for Regions will be increased to Rp. 250 trillion, or 33.6% of total government spending, up from Rp. 219.4 trillion in 2006 or 33% of government spending. This policy is aimed to cut down on the many levies made by regions that today burden the private sector and the public, which add to the high-cost economy as well as to business uncertainties.  Additionally, this fiscal stimulus is aimed to increase investments and exports to boost the production sector. 

While, Reform in the micro-economy relies on its two main pillars, namely (1) improved investment and business climate, and (2) the acceleration of infrastructure development throughout the country. However, these can be achieved only when the macro-economy remains stable. 

Meanwhile, aside from the six previously mentioned expenditures, the National Government must also pay interests on debts, both domestic and foreign debts, to a total of Rp. 85.1  trillion. Therefore total Central Government expenditures in 2007 will amount to Rp. 296 tirllion or up 16% compared to 2006. 

In conclusion, the President called on the entire nation to look ahead, and, with concerted efforts, build a brighter future together. “Long was the road that we have tread, there is much that we have achieved, yet, there remains much more that we must undertake to reach those ideals and purpose of our Independence. The years that we are navigating today are by no means easy, and replete with challenges. Be that as it may, by the grace of Allah SWT, I am confident, that all of us, the Indonesian nation together and united will be able to transform our fate towards a better future”.

(If readers are interested to receive the complete English translation of the President’s State Address, please write in to Indonesia Digest at tbsc-strategy@indo.net.id)

(Source: English version issued by the Coordinating Ministry for Economic Affairs) (Tuti Sunario)