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.