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Economists Say Public Spending Has to Speed Up to Survive Crisis
Yessar Rosendar & Ardian Wibisono | June 06, 2009

Customers selecting Indonesian-made shoes at a local market on Friday. (Photo: Jurnasyanto Sukarno, JG) Customers selecting Indonesian-made shoes at a local market on Friday. (Photo: Jurnasyanto Sukarno, JG)
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Despite the government’s much touted fiscal stimulus package, only about 27 percent of the total national budget, or Rp 286.95 trillion ($29 billion), has actually been spent this year. This is only slightly up from the same period last year when the figure was 25 percent.

Economists say that much faster spending is needed to see the economy safely through the crisis.

Speaking on Friday, Herry Purnomo, the head of the Finance Ministry’s Treasury Directorate General, said that on a year-to-date basis, expenditure on employees amounted to 36 percent of the budget appropriation compared with 35 percent last year; spending on goods and services stood at 18 percent compared with 17.9 percent; and capital expenditure had risen to 20.29 percent from 16 percent.

Despite the apparently miniscule increase, he insisted that “all the indicators show that we have sped up spending.” He said that while the pace of spending depended on the ministries and government agencies, the Ministry of Finance has made efforts to accelerate the process by speeding up decision-making.

Eric Alexander Sugandi, an economist at Standard Chartered Bank, said that the “slow rate of spending” could derail the fiscal stimulus package and undermine growth.

“If it’s not resolved in the second or third quarter, then the fiscal stimulus package won’t produce the desired results,” Sugandi said, adding that besides expediting the decision-making process, the government also needed to streamline land acquisition for infrastructure projects.

In the past, bankers have also argued that the banking sector would find it difficult to expand lending on its own unless supported by accelerated government spending.

According to Bank Indonesia figures, total outstanding domestic loans in the economy dropped in April to Rp 1.29 trillion ($130 million) from Rp 1.30 trillion in March.

Herry also said that the national budget was actually in surplus to the tune of Rp 69.21 trillion as of May 31, compared with Rp 21.3 trillion on May 15.

He said that this was primarily due to soaring government bond sales, although many commentators say it also reflected slower than expected public spending.

By year’s end, the government is predicting a deficit of Rp 132 trillion, or 2.5 percent of GDP.