Govt projects to be tendered before start of fiscal year

The Jakarta Post, Jakarta

Government agencies will be allowed to hold tenders for projects before the start of the fiscal year so as to expedite government spending and keep economic growth on track next year.

State Minister for National Development Planning Paskah Suzetta said in Jakarta that his ministry wanted public spending on procurements and development projects to account for a minimum of 25 percent of the 2007 total within the first quarter,

"Projects must immediately be rolled out and use up their disbursed funding allocations," Paskah was quoted as saying by Antara.

"This is necessary so as to ensure there will be an increase in spending in order to support economic growth," he explained.

He said that a large amount of funds under this year's budget had not been spent due to delays affecting procurement tenders.

Paskah acknowledged some difficulties could arise from the new policy, particularly the lack of advance funding for preparing project tenders. However, he argued that all government agencies should have special funds set aside for this out of their own budgets.

"I have told them to do that, or at least come to an arrangement whereby preparation costs can be paid afterwards," he said.

To date, only the State Ministry for Cooperatives and SMEs has held a tender for a project before the start of the fiscal year. This was for the procurement of gas canisters as part of the government's program to replace kerosene stoves in Greater Jakarta next year.

The need to speed up public spending is highlighted by the latest figures from the Finance Ministry, which show that actual government expenditure on the procurement of both durable and capital goods as of the end of November still fell short of the allocations made under the revised 2006 budget.

Spending on durable goods only amounted to Rp 33.3 trillion (US$3.6 billion), or 59 percent of the total allocation, while spending on capital goods stood at Rp 39.5 trillion, or 57 percent of the total allocation. The government has set aside a total of Rp 125.7 trillion for the procurement of both durable and capital goods this year.

It is expected that only some 70 percent of these allocations will be spent by the year's end. This means that the other 30 percent of the funds will be retained by the Finance Ministry.

Director General for the Treasury Herry Purnomo said the shortfall in this year's spending was mainly due to the failure by many government agencies to properly prepare their projects.

There are also indications that much of the money paid out to the regions has been put into central bank treasury bills (SBI), with allegations in the media that project executive officers frequently do this for personal gain.

Herry said that undisbursed funds would not be carried over into next year's budget.

Although the shortfall in spending may balance out a similar shortfall in this year's tax revenues, resulting in Finance Minister Sri Mulyani Indrawati's statement that the budget deficit may possibly come in lower than previously estimated at 1.1 percent of gross domestic product (GDP), it still means bad news for growth.

With people's purchasing power still recovering from last year's fuel price hikes, Indonesia's consumption-driven economy slumped to a low 4.6 percent growth in 2006's first quarter, before rebounding to 5.1 percent and 5.5 percent in the second and third quarters respectively.

This came as government and recovering consumer spending began to crank up the country's economic engine.