Planning state investments

Planning state investments

Government investment, which is itemized under the development
budget in the treasury accounts, will put up only Rp 30.7
trillion (US$14 billion), or 26.4 percent, of the Rp 113.5
trillion total investment required in the next 1995-1996 fiscal
year to generate an economic growth of at least six percent. The
remaining Rp 82.8 trillion investments are expected from the
private sector, including state companies. All these target
figures are by and large in line with the targets set in the six-
volume Sixth Five Year Plan (Repelita VI) Book.

The mere 2.5 percent increase in government investment
budgeted for next fiscal year -- the second year of the sixth
plan -- should not, however, be seen as detrimental to overall
economic development. We should not view state investment from
the absolute amount because as the government steadily decreases
its direct involvement in economic activities and retreats from
the economic sectors that can more efficiently be conducted by
the private sector, the role of its investments in fueling
economic growth will diminish as well.

We note, for example, that since 1985 -- when the first
package of massive economic reform measures, notably deregulation
and bureaucratic reform, was launched -- the operating (routine)
budget of the government has always been larger than its
investment budget.

Critics may argue that the trend has not been designed
deliberately but has instead been forced by the limited financing
capability of the government. We don't, however, share that
notion. We think the government should be commended for having
been consistent with the spirit of its economic reform. In the
1990-1991 fiscal year, for example, when the government got an
oil windfall as a result of the skyrocketing oil prices in the
wake of the Gulf war, the government firmly held to its tight
budget and kept the surplus funds as reserves for development. In
fact, the government now still holds Rp 1.7 trillion in such
reserves.

The way the development (investment) budget is allocated, as
outlined in the 1995-1996 draft state budget, further reassures
us of the government's determination to hold firmly to its policy
of steadily decreasing direct involvement in economic activities.
The largest portion of the investment budget will be used for the
development of the provinces, human resources and basic
infrastructure. The emphasis on those three major areas will
support the government's basic tasks in economic development --
directing, guiding and facilitating the economic activities of
the people. The privatization of state companies should also be
seen in this light. Direct involvement of the state in the few
economic sectors is designed to be a catalyst to encourage or
support private-sector activities.

President Soeharto himself reiterated in his budget address on
Thursday that in so far as economic development activities are
concerned, the government will limit its role to giving
direction, support and endorsement.

The President also reaffirmed -- apparently as a reminder to
his cabinet ministers -- that every development project proposed
by the ministries to the National Development Planning Agency
should be tied to the annual programs stipulated in the Sixth
Five Year Development Plan. Otherwise their proposals will be
rejected outright. That, we think, is quite encouraging because
such a policy will help ensure that the public funds will be used
in line with the guidelines set by the taxpayers through their
legislators who have approved the development plan.