Spending on infrastructure set to rise by 34 percent next year

Ary Hermawan, The Jakarta Post, Jakarta

The government will allocate more money for infrastructure development in next year's budget in an effort to ease the distribution bottlenecks that have seriously hampered the country's economic growth.

"The bottleneck problem will become worse in 2008 if nothing is done to deal with the infrastructure issue," Coordinating Minister for the Economy Boediono said Wednesday in Jakarta.

Boediono said that the government planned to increase spending on infrastructure by 34 percent to Rp 56 trillion (about US$6.2 billion) next year from Rp 41 trillion this year. The Public Works Ministry and Transportation Ministry would receive Rp 34.3 trillion and Rp 24.2 trillion, respectively.

The Rp 56 trillion would include Rp 7.03 trillion for the regions paid out of the Special Transfer Fund (DAK).

The coordinating minister stressed that while infrastructure spending would account for the biggest increase in budget spending, human development would also remain a top priority.

Human development, which includes education and health, would receive some Rp 83 trillion next year, an increase of about Rp 7.9 trillion over this year's figure. The human development allocation would therefore account for about 15 percent of total 2008 budget spending, which Boediono estimated would amount to Rp 554 trillion.

He said that the 6.8 percent growth penciled in for 2008 would be difficult to achieve if nothing was done to speed up the construction of infrastructure, such as new expressways and power plants.

"We have acute experience of these problems. We lack electricity, expressways, ports," he stressed.

He said that to achieve the 2008 growth target, the government would further relax its fiscal policy.

"We have decided to change our fiscal policy to support economic growth," he said, explaining that up until 2005, post-crisis fiscal policy had been primarily intended to achieve fiscal consolidation. "We have now entered a period where spending should serve as a stimulus for growth," he explained.

The country's tax to GDP ratio has slowly climbed from less than 10 percent in 1999 to 12 percent in 2006. The ratio is expected to rise to 13 percent this year. Meanwhile, with the latest debt repayment to the International Monetary Fund (IMF), the debt to GDP ratio has fallen to 42 percent from 60 percent in 2004 and 100 percent in 2000.

The government is predicting that year-on-year inflation will remain moderate at 6 to 6.5 percent next year, while Bank Indonesia (the central bank) is expected to further trim its key rate to 7.5 percent.

The oil price reference employed for the 2008 budget is

US$57 per barrel, while the country is expected to produce 1.034 billion barrels per day.

Foreign exchange reserves are forecast to grow to between $59.3 billion and $61.1 billion next year, from $51.6 billion at present, with the average rupiah-U.S. dollar exchange rate remaining at Rp 9,300 per dollar.

"It is actually possible to achieve 7 percent growth, as we did before the 1998 crisis, which in itself was a remarkable achievement. The difference now is that we have to do it in a different social and political environment -- a more democratic society," he said.