The government is considering a boost in infrastructure spending in this year’s fiscal stimulus package, after a House of Representatives’ commission requested it be increased on Thursday. The boost would help the domestic economy mitigate the local impact of the global economic crisis, a senior official at the Finance Ministry said on Friday.
“We will take into account the House’s request to increase spending [on infrastructure],” said Anggito Abimanyu, head of fiscal policy at the ministry, but declined to give a financial estimate of the increase.
In a hearing on Thursday, the DPR’s Commission XI, which oversees the state budget, gave a green light for the government’s Rp 71.3 trillion ($6.13 billion) fiscal stimulus package, meaning that it now goes to a budgetary commission for further approval. The commission also approved a wider projection for the state-budget deficit at 2.5 percent of gross domestic product, or GDP, equivalent to Rp 132 trillion, up from 1 percent or Rp 51.3 trillion previously.
“We have no objection to running a deficit at 2.5 percent,” said Hafiz Zawawi, a legislator from the Golkar Party and commission chairman, on Thursday.
But the House was unsatisfied that of the Rp 71.3 trillion package, only Rp 10.2 trillion was allocated to infrastructure spending, which lawmakers worried was insufficient to directly impact on job creation.
The additional funds would add to the existing Rp 70 trillion in infrastructure spending that the government approved in last year’s budget - money that it normally allocates to its ministries and departments to spend on areas including public works, education and health.
In response to the House’s request, the Finance Ministry’s Anggito warned that higher spending on infrastructure as requested would mean an even wider budget deficit, which would require more financing.
“Consequently, it means there has to be an additional deficit or additional financing, but when the time comes, we will bring our proposal to the budgetary committee,” Anggito said.
During Thursday night’s hearing, Finance Minister Sri Mulyani Indrawati also stressed that legislators needed to quickly approve the government’s revision of the 2009 state budget because it was crucial to ensure authorities could act quickly to mitigate the impact of the global financial crisis.
Accompanying Sri Mulyani was Paskah Suzetta, the minister of national planning development, who acknowledged that the risk of global economic slowdown could potentially send millions of people out of work.
If the government was able to achieve 5.5 percent growth this year, then unemployment would fall to 7.9 percent of Indonesia’s total workforce of 110 million, equivalent to 9.09 million, she said. In the worst-case scenario, if Indonesia’s economic growth was only at 4.5 percent, then the country would have an 8.6 percent unemployment rate with 9.82 million people jobless, an increase of around 400,000 from the current figure. The unemployment rate as of August 2008 stood at 8.39 percent or 9.39 million people, according to the Central Statistics Bureau.
Sri Mulyani said the government would do its best to minimize the impacts of the global economic slowdown, “so at least 4.7 percent growth can be achieved,” she said.
Commission XI’s hearing ended with consensus that 2009 economic growth is projected at 4 to 5 percent, inflation is estimated to ease to 6 percent by year-end, three-month Central Bank Certificates, or SBIs, at 6.5 to 7.5 percent, while the average rupiah exchange rate was set at Rp 11,000 per dollar and global crude oil price at $45 a barrel.