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.