Economists support economic stimulus plan

Economists support economic stimulus plan

Dadan Wijaksana, The Jakarta Post, Jakarta

Analysts agreed that an economic stimulus package, including
an increase in development spending, was necessary to protect the
already fragile economy from further faltering next year due to
the deadly terrorist attacks in Bali two weeks ago.

"An increase in development spending will give a boost to
infrastructure development. This will in turn boost economic
activities and absorb many workers," Chatib Basri, an economist
at University of Indonesia's Institute for Economy and Social
Research (LPEM) told The Jakarta Post on Tuesday.

Chatib said the Bali bomb blast had dealt a blow not only to
the tourism industry but the overall economy.

He made the statement following the announcement by the
government that it would raise development spending for 2003 to
mitigate the impacts of the Bali bombing. It however did not
specify the amount.

Under the 2003 budget draft, presented to the House of
Representatives in August, development spending was set at Rp
54.5 trillion, or 2.8 percent of gross domestic products (GDP).

Although the increase would lead to a larger budget deficit,
the government said it was necessary to encourage business
activities at a time when businessmen were expected to scale down
their operations or delay investment due to security concerns.
The deficit initially stood at Rp 26 trillion or 1.3 percent of
GDP.

According to Raden Pardede of Danareksa Research Institute,
the deficit could widen by between Rp 20 trillion to Rp 25
trillion.

He based his calculation on an estimated Rp 10 trillion of
loss in potential tax incomes, coupled with the funds needed for
infrastructure development in Bali.

The government said it would ask creditor countries to provide
more loans to help cover the larger-than-expected deficit. The
next meeting with the donor countries grouped under the
Consultative Group on Indonesia (CGI) is said to be the country's
best chance to ask for such requests.

To make the stimulus more effective however, Chatib suggested
the government also provide tax incentives.

"This will strengthen the people's purchasing power. So the
government could classify as to which sectors such incentives
will be focused on. I think the sectors with high multiplier
effects should be the priority," he said, while adding that the
textile sector was one such industry.

"If the government is willing to cut luxury tax on electronic
goods for example, this would have a significant effect on the
industry."

The government currently imposes luxury taxes on the industry
of up to 70 percent.

Amid the drop in foreign and domestic investment and falling
exports, domestic consumption has become the backbone of the
country's economic growth for several years.

However, following the Bali bombing, there is a fear that
consumption will drop.

As a matter of fact, even before the Bali attacks, economists
had called for an economic stimulus plan in order to attain high
economic growth.

High economic growth would help to absorb the tens of millions
of unemployed, as well as push them above the poverty line. There
are currently close to 40 million Indonesians classified as
living below the poverty line.

But, the economists say the 2003 state budget did not offer
much room for a stimulus package, pointing to the fact that the
budget was designed more to service debt payments than to drive
the economy.