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Indonesia Must Guard Democratic Process, Yudhoyono Says

Indonesia must guard its democratic process after a disputed presidential election, said President Susilo Bambang Yudhoyono, as he laid out a budget for next year that leaves curbing costly fuel subsidies with his successor.

Around 135 million Indonesians went to the polls in last month’s vote, which the General Elections Commission said was won by Jakarta Governor Joko Widodo, Yudhoyono said in a speech in the city today. Rival candidate Prabowo Subianto has contested the outcome, with the Constitutional Court expected to rule on the result next week and police prepared for possible street protests in the world’s third-largest democracy.

“We have to guard this process with peace,” Yudhoyono said in an annual address before the country’s Independence Day on Aug. 17. “Political democracy has been developing well. In 15 years there have been four elections. And all went well, in peace.”

Yudhoyono will hand over the baton to President-elect Widodo in October, after a decade in power that returned Indonesia to a sovereign investment-grade rating through political stability and debt reduction. Ensuring a calm transfer of power is crucial for Indonesia as it seeks to assure investors the nation’s closest election in more than a decade won’t erode economic progress.

Widodo, known as Jokowi, will inherit an economy that grew in the second quarter at its slowest pace since 2009. Indonesia expanded at an average 5.9 percent a year from 2009 to 2013, and is now a middle income country, Yudhoyono said.

Budget Targets

The outgoing government’s budget for next year targets economic growth at 5.6 percent, Yudhoyono said in a separate budget speech to parliament.

“What we focused on is the inflation number, which is only 4.4 percent, so this budget likely hasn’t taken into account any fuel-subsidy cap,” Eric Alexander Sugandi, an economist at Standard Chartered Plc in Jakarta, said by phone. “Growth at 5.6 percent is still achievable.”

Yudhoyono expects a 2015 budget deficit of 2.3 percent of GDP, similar to this year’s 2.4 percent. Revenue is expected to rise 7.9 percent, including a 10 percent gain in tax receipts, while spending is seen climbing 7.6 percent from this year. That includes energy subsidies at 363.5 trillion rupiah ($31 billion), which will act as a drag on the government’s ability to fund infrastructure and look set to be an early test for Jokowi’s reform credentials.

Health, Education

The incoming administration will have time to adjust the budget, Yudhoyono said. Jokowi said he will discuss the budget with Yudhoyono’s government after the Constitutional Court finishes reviewing the election challenge. Jokowi said he will prioritize programs in health and education and gradually cut subsidies to give policy makers more fiscal room.

“We want to boost income soon in our program,” said Jokowi, who wants to move tax forms online to improve collection.

The 2015 budget estimates an unemployment rate of 5.5 percent to 5.7 percent, in line with the jobless rate in February this year. Yudhoyono targets a 2015 poverty rate of 9 percent to 10 percent, after the number of Indonesians living below the government’s poverty line climbed to 11.5 percent of the population last September.

“Jokowi may face some opposition in parliament when seeking to revise the budget,” Standard Chartered’s Sugandi said. “Jokowi is still largely popular, so he can use the media to build a positive public opinion to support his budget revision, but he would need to do this fast.”

Widening Inequality

The country’s wealth gap has widened, challenging Yudhoyono’s goals for reducing poverty reduction, and boosting the popularity of Jokowi, who ran on a platform of concern for common people in the world’s fourth most populous nation. The country’s gini coefficient, a measure of income inequality, widened to 0.41 in 2012 from 0.35 in 2005, the year after Yudhoyono became president, according to the World Bank.

Yudhoyono has previously warned the political situation could “boil” should the losing candidate refuse to accept defeat. Yudhoyono said he would support the incoming president.

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