Stimulus helpful but not a booster to growth: Economists

Stimulus helpful but not a booster to growth: Economists

The Jakarta Post, Jakarta

Economists welcomed the additional Rp 10.5 trillion (about
US$1.1 billion) in development spending next year to soften the
impact of the Bali bombing, but added the government should lend
a hand to the economy's real booster: the ailing private sector.

The state budget is not the main contributor to the economy to
begin with, said Bank Mandiri chief economist Martin Panggabean
on Tuesday.

"We can't expect too much from the budget to grow the economy,
it'd be like a becak (pedicab) towing a car," he said.

State expenditures, both for routine and development spending,
accounts for 19 percent of gross domestic product (GDP), which is
the value of the country's annual output of goods and services.

With an estimated GDP of Rp 1,950 trillion next year, he said,
a one percentage point GDP growth required Rp 19.5 trillion in
additional spending.

The House of Representatives' budget committee had sought a
stimulus package of up to Rp 20 trillion. The government proposed
Rp 5.9 trillion, before both sides agreed on Rp 10.5 trillion on
Monday.

That amount would come on top of Rp 65.13 trillion earmarked
for development spending in the 2003 draft budget, which is hoped
to spur the economy into growing by 4 percent next year.

Finance Minister Boediono on Tuesday said the stimulus package
would consist of Rp 6.1 trillion in infrastructure projects, Rp
2.6 trillion in human resources development projects, and Rp 1.3
trillion in defense and security spending. The remaining Rp 700
billion is to be split over other sectors.

With the bulk of the money going into infrastructure projects,
the government hopes to boost the labor intensive construction
sector and thereby ease pressure on unemployment.

"However the point here isn't how much the government spends,"
Martin said, "but rather how sound policies can stimulate the
private sector."

Standard Chartered Bank economist Fauzi Ichsan agreed, adding
that security threats were adding to investors concerns next to
political instability and a poor legal system.

"For immediate effect the stimulus package is preferable but
over the longer term government policies should do the job," he
said, adding Standard Chartered maintained its 2003 growth target
at 3.5 percent despite the stimulus package.

He said the government could not rely on its state budget to
push the economy. Not only as budget revenue was tight, but also
because the private sector should be the one leading investment
spending.

"One quarter of the budget is reserved to paying off debts, it
doesn't lend much of a stimulus," Fauzi said.

But private investment is unlikely to pick up anytime soon
given the lingering adverse business climate. Five years after
the economic crisis struck the country, capital outflow still
exceeds inflow, and analysts said to reverse the trend Indonesia
must push ahead with its economic reforms program.

Sponsored by the International Monetary Fund (IMF), the
program calls for, among other things, structural reforms to
improve the banking sector and the judiciary, and measures
against rampant corruption.