Wed, 25 Jul 2007
Published: July 24 2007 13:36 | Last updated: July 24 2007 13:36

Indonesia intends to slash its 2008 budget for the government bureaucracy by 28 per cent, or $4.1bn, and steer the savings to regional infrastructure development programmes in a bid to meet ambitious growth and poverty alleviation targets ahead of 2009 elections.

Paskah Suzeta, the development planning minister, said on Tuesday that civil servants’ pay would not be cut but that the savings would come from reduced budgets for travel, vehicles, buildings and office equipment.

“There’s a lot of irrational spending in the bureaucracy,” he told the Financial Times in an interview. “If more is spent on infrastructure we will increase employment, reduce poverty and increase economic growth. We can cut spending in the bureaucracy without affecting performance.”

President Susilo Bambang Yudhoyono was elected in 2004 on promises of macro-economic stability and significant cuts in poverty and unemployment. Only the first of these has happened and investors are becoming wary of the slow pace and inconsistent nature of efforts to stimulate the real sector and improve the investment climate.

Economic growth last year was 5.5 per cent, down from 5.6 per cent in 2005. But Mr Paskah said he was confident the additional $4.1bn for capital projects, which represents an increase of 43 per cent on the original budget, would ensure the government achieves its 2009 targets of 7.6 per cent economic growth and an unemployment rate of 6 per cent from its current 10.2 per cent.

The additional money will be spent mostly by district administrations on education, health, agriculture, water projects and roads, the minister said.

Mr Paskah denied the initiative was early electioneering. “We’ve been planning these increases in capital spending for years,” he said. “We’ve also only just started looking at bureaucratic reform and this is a way we can achieve both.”

But Faisal Basri, an economist at the University of Indonesia, said the move appeared more political than economic. “It’s very clear that the reallocation is a populist measure ahead of the 2009 election,” he said. “Spending on infrastructure has been very low over the last few years and I can’t see how they can increase it by as much as they plan to and implement it effectively.”

Mr Faisal said he also doubted the reduced spending on the bureaucracy would do anything to address corruption in the civil service, often the source of frustration for foreign investors. “They’re not cutting spending in areas such as projects which have been the traditional areas for civil servants to make money on the side,” he said.



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