 Hi, I'm Jackie Baker at one of the editors at New Mandala. I'm here sitting with Professor Hal Hill and Dr. Arianta Patunru, and we're going to talk today about some of the economic and policy challenges that a new Jacoi government might face. So thank you so much for joining us today. Thank you. Thanks, Jackie. My first question would be, the last two surveys of recent developments in the Bulletin of Indonesian Studies suggested that there's not a lot of fiscal wiggle room for the new Jacoi government. Why is that? And what are the economic and financial challenges that a Jacoi government might face? Well, that's true. There isn't a lot of wiggle room, and this is a new administration, which has got a lot of spending pledges. And of course, the alternative candidate, Prabowo Sobianto, had even more spending pledges. Indonesia's had this remarkable fiscal consolidation since the Asian financial crisis. At the end of the Asian financial crisis, its public finances were in tatters. Public debt to GDP was about 100 percent. Now it's down to the mid-20s, so it's been a remarkable achievement. However, the government has very little room to move for several reasons. One is its tax effort isn't all that strong. On the revenue side, it's hemmed in. And then a lot of its expenditure is also pre-allocated or pre-committed. So the major items, for example, this subsidy issue, which has bedeviled successive administrations, it's now a huge part of the budget, almost 4 percent of GDP, highly inequitable and highly inefficient. That's one part of it. Another part is the commitment in the Constitution now to spend 20 percent of the budget on education, which of course is good, but it's also pre-allocating. And then a lot of the budget also goes out automatically to the regions, mainly to the Kabul Parton and Kauramadhyam under an automatic revenue sharing formula. So for all those reasons, the leeway is really limited. In addition, Indonesia has a fiscal law which says that the government should not run deficits of more than 3 percent of GDP. It's already very close to that 3 percent limit. And so it's got even less room to spend. One final point, there's also still a kind of anti-borrowing syndrome in Indonesia, which is understandable. It's a result of the Asian financial crisis when Indonesia got badly affected by financial markets. And therefore, there's a lot of understandable hesitation about borrowing even at very low interest rates for long-term infrastructure projects. Yeah, just to re-emphasize what Hal has been mentioning, so there has to be three things at least to be done. The first one is to reduce the subsidy, especially fuel subsidy that already amounted to almost 250 trillion. And that's the first one. The second, reallocate. Of course, there's not too much space in reallocation, reallocating the items, but putting more on allocation for infrastructure, for example, poverty education, as opposed to putting more and more on subsidy, I think, is a must. And the third one is probably the government should think again about borrowing. What has Jacoey said that his policy priorities are, and can he afford them? That's a good question, because many of what he promised actually involve more and more money allocation to each village and then these kilometers off-road and everything. So all of this, I think, can be done. But the first thing that needs to be done, necessary condition for this is the three things that I mentioned, what is to be done with the budget structure and also fuel subsidy. In some ways, Indonesia now is not unlike Australia now, in the sense that we both enjoyed this massive commodity boom, you know, driven by China over the past decade. And in the last two or three years, commodity prices have fallen a lot, and we still got budgets which are operating on the assumption that we still have high commodity prices. So just as in Australia, there's a debate going on about this sort of so-called structural budget deficit, that is where kind of spending, as though we still had the revenue from the commodity boom period, Indonesia is a little bit like that too. It's also a commodity exporter, and it's now having to adjust to these lower commodity prices, which mean lower government revenue. But the political rhetoric is still in the era of commodity boom. And as we saw in the election this year in Indonesia, like we saw in the election in Australia last year, no one really in that political rhetoric kind of addressed some of the harder questions of how do we adjust. Yeah. I mean, do you see that having political implications in the short term for a New Jacoi government? Yes and no. I think the political implication, of course, he has to deal with the debt pay at the house. For example, now if he wants to raise the fuel price, for example, it's okay without house approval. But sometimes when, like in the past, if you raise the fuel price, you might want to accommodate with the compensation, and compensation you have to consult with debt payers. So there's this, you know, discussion has to be going on with the New Jacoi and his cabinet and the president. And of course, many of this also is subject to the cabinet, of course, and how cabinet members will be able to talk with the debt payers and other political parties. And I suppose in turn, we don't really know who are going to be the key economic policy makers in a Jacoi administration, lots of rumours, but at least you would say that the SBY as president appointed very competent technocrats. The two key positions are really the finance ministry, which of course is held by a new PhD, and the governor of the central bank, and those two key appointments during the SBY period. The 10 years have been very competent people, but even with very competent people, SBY found it too difficult to do it. Now with this new administration where we don't know who's going to be in these key positions, could be inexperienced. So there could be a real learning period of a year or two. In addition to the points that I mentioned of working with this rainbow cabinet and this parliament, there could be just a technical bit of getting it through the cabinet, through the key positions. In addition to those two positions, Minister of Finance and Bank Indonesia, I think one key position is also trade ministry. I think that's very important, especially now that Indonesia is engaging with all this regional and international trade forum. And what is missing basically, what has been missed from the campaign, for example, is the clear direction as to how trade policy is going to be in the NJACOI presidency. I think it's important because just recently we have seen so many policies that leads to protectionism or research nationalism and it's not very good for the economy. So it's really important to have good trade ministry. And I suppose in turn, Achro, that leads to more general observation, isn't it, which is we know that from Indonesian experience, and again, Australia's not unlike it, that when you get a commodity boom, you tend to get a resurgence of economic nationalism. People think there's plenty of money. We don't need to worry about what foreigners think. We don't need their money. We've got our own money. And so there's a very clear correlation historically in Indonesia between periods of very high commodity prices and this sort of, this economic nationalism. And in the past, when the commodity prices have fallen quite sharply, that's when the sort of political economy realignments change. You know, presidents need kind of technocratic advice and so the economists often become more important. And so that happened very clearly under Soharto, a couple of occasions in the big crisis of the mid-60s, mid-80s, and then there was recovery. The question now is, and that's been written about a lot, we know the political economy story of how the technocrats became more important when economic circumstances became more challenging. The question now is, will that old formula, which in Indonesia was often called Suddli's law, you know, bad times make good policies, will that formula still work in this new political economy constellation? And I don't think we know the answer yet. We don't know, yeah. Yeah, right. Yeah, I mean, it's very interesting because Eve Warburton just wrote for East Asia forums suggesting that economic resource nationalism would, is a fixture now in the Indonesian political landscape. But you're suggesting that that may not be able to hold? Well, I would expect that President Jokowi will become more pragmatic when he is, he became officially, become president, more pragmatic than what he appeared in the campaign. Why? Because he just needs to do that. I mean, the first thing of course he would do when he become officially become the president is to look at the budget and, well, it's not enough. And then after that, he has to engage with the international part, you know, like after his appointment, of course, there are two international activities that he has to engage with. The first one is APEC, Beijing, and then G20 here in Brisbane. And this also relates to how Indonesia deals with foreign trade policy. And as you said, you know, this issue about resource nationalism has been appearing in the surface, and I think President Jokowi will realize that he needs to make some adjustment more pragmatically. Yeah, and if I could just add there, I think the appointment of the trade minister as Acha mentions is really important. So an Indonesian trade policy has swung quite a lot depending on who that minister is. So for the first term of SBY and about half of the second term, we had Indonesia had a very competent trade minister, a very well-known, of course, an ANU graduate as well, Dr. Mari Bangesdu, and she held the line on this protection as pressures. But before her was Rini Suwandi, who is now, of course, running the transition team of Jokowi. And Rini as trade minister was, you know, was pretty protectionist. And subsequent to Mari being moved to tourism and creative economy, there had been two ministers, Mr. Gita and Mr. Ludfi, and they've both been, they've talked globalization, but they've both been pretty protectionist. And so Mari's period was the exception, in a way, to the period before and after her. So the choice of trade minister, I just wanted to underline the point that Atro made, the choice of trade minister is very important. One other little point to keep in mind also is that in December next year, the ASEAN economic community takes effect. And in principle, at least, it's going to just be a bit harder to get all these trade policy interventions through because Indonesia will be subject to the inspection from its ASEAN member countries. And there are some very open economies in ASEAN, like Singapore, Malaysia, Thailand, who'll be looking at Indonesia. So some of our technocrat friends in Indonesia now say probably the only real buttress against this trend towards protections may, in fact, be the regional commitments. Wow, fascinating. Well, thank you very much, gentlemen, for coming in today. Thank you. We really appreciate your contribution. Thanks again. Thanks very much, Jackie.