Stimulus package approved, raised

Aditya Suharmoko, The Jakarta Post, JAKARTA | Wed, 02/25/2009 8:45 AM  

Legislators approved late on Tuesday a provision in the 2009 state budget that enables the government to unleash its much-needed stimulus package, and even increased it by Rp 2 trillion (US$176 million) to help shield the economy from the global economic meltdown. 

The provision centers on Article 23 of the state budget, which can be used under "emergency" conditions only. 

"The emergency conditions constitute, among others, economic growth plunging 1 percent below the government's assumption and the significant rise in government bond yields," said Suharso Monoarfa, vice chairman of the House of Representatives' budget committee. 

The Rp 2 trillion increase, which puts the total stimulus at Rp 73.3 trillion, will be allocated to finance infrastructure projects, which lawmakers consider of high importance to generate employment to protect "people's prosperity", Finance Minister Sri Mulyani Indrawati said in a hearing with the committee. 

Suharso said ministries, government agencies and regional administrations that failed to execute the stimulus for the sake of the people would have their budget allocation cut in the 2010 state budget. 

The increase means the budget deficit is raised to Rp 139.5 trillion, or 2.5 percent of the GDP. The figure is Rp 88.2 trillion higher than the Rp 51.3 trillion stated in the 2009 budget. 

The government will have to finance it by using Rp 51.3 trillion of unused funds from last year's budget and seek additional loans worth Rp 44.5 trillion and program loans worth Rp 1.1 trillion, Suharso said. 

Mulyani said the economy was expected grow by 4.5 percent in 2009, far slower than the 6.1 percent booked last year. 

Exports may contract by 3 percent this year due to the slowing economies of Indonesia's trade partners. 

Investment will also likely be hit, down to 5.9 percent from the 7.5 percent previously expected as the liquidity crunch halts flows of money. 

All these factors, Mulyani pointed out, would contribute to a higher rate of unemployment and poverty. 

As of January, export-oriented industries had laid off 24,790 workers, and were planning to lay off another 25,000 in the coming months. 

However, she said, the impacts to the economy would be much heavier if the government failed to come up with the stimulus. 

With all economic indicators taking a beating, the unemployment rate is predicted to soar to 8.87 percent of Indonesia's 230 million population if the government does not act immediately.

The economic stimulus package, which is expected to take full effect as early as March, is estimated to contain the rate to less than 8.34 percent. 

The stimulus is aimed at maintaining private consumption, the main driver of the economy, growing at between 4 percent and 4.7 percent, Mulyani said. 

Of the total, Rp 12.2 trillion to be allocated to infrastructure projects and empowerment programs for people living in rural areas, considered the most efficient way to cushion massive layoffs.