Effective January 1, 2015, Indonesia’s new government took the decisive step ofimplementing a new fuel pricing system, dramatically reducing gasoline and dieselsubsidy costs. This paved the way for the government’s first budget, passed inFebruary, to shift spending towards development priorities, especially infrastructure,the allocation for which is double the 2014 outturn. Successful implementation ofthe bold vision of the budget, however, will require overcoming administrativeconstraints to spending and dramatically lifting revenue collection performance.Achieving this, and having the benefits flow through into faster economic growthand poverty reduction, is likely to take time, especially with the pace of sustainableeconomic growth having slowed, due partly to lower commodity prices. Beyond thefiscal sector, reforms taken in the first months of the government’s term in keyareas such as investment licensing also face complex challenges to make operational.The government has signaled its strong reform intentions, and raised expectations.Early progress will now need to be consolidated by effectively implementing majorreforms and the budget posture, against a still-challenging global economicbackdrop for Indonesia.
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