Government to Boost Spending at Year’s End

KOMPAS/PRIYOMBODO

A screen shows infographics displayed over video footage of Finance Minister Sri Mulyani Indrawati as she provides information at the 2019 November Performance and Facts press conference at the Finance Ministry in Central Jakarta on Monday (18/11/2019). Indonesia\'s economic stability is still maintained amid the prospect of slowing global economic growth. Indonesia\'s gross domestic product (GDP) in the third quarter grew 5.02 percent and cumulatively increased 5.04 percent in line with the strong growth of household spending and nonprofit institutions serving households.

The government is implementing various strategies at year’s end, including boosting spending, to keep economic growth at above 5 percent. Public spending will also be maintained at the current level.

JAKARTA, KOMPAS — The state budget (APBN) can have a huge impact on Indonesia’s economic growth. Spending will have to increase to support this economic growth. On the other hand, policies counterproductive to public spending must be avoided.

Finance Ministry data on Tuesday (19/11/2019) shows that state spending as of October was Rp 1.79 quadrillion (US$127.59 billion) or 73.1 percent of the 2019 state budget’s ceiling. Spending grew by only 4.5 percent year-on-year (yoy), much lower than the 11.9 percent yoy growth recorded in October last year.

Referring to Statistics Indonesia (BPS) data, Indonesia’s economy grew by 5.02 percent in the third quarter of 2019, with household spending contributing 2.69 percent and investment 1.38 percent.

Center of Reform on Economics Indonesia (CORE) executive director Mohammad Faisal said that in the presence of today’s multiple local and global economic pressures, the government should loosen its monetary and fiscal belts.

“Spending should not be reduced just because revenue is lower. Efforts to boost revenue should not lead to businesses holding back on production,” Faisal said in Jakarta.

He added that state spending must be pushed to boost economic growth. Once it improves, taxes can be pursued to reduce the budget deficit.

As of October 2019, the state budget deficit is at Rp 289.06 billion or around 1.79 percent of gross domestic product (GDP). Tax revenue realization reached Rp 1.018.47 quadrillion or 64.56 percent of the state budget’s target.

KOMPAS/PRIYOMBODO

Bank BTN promotes home ownership loans to prospective customers at the opening of the Indonesia Property Expo at the Jakarta Convention Center in Central Jakarta on Saturday (16/11/2019). According to data from the Public Works and Housing Ministry, there is an estimated demand of up to 800,000 houses every year. The exhibition will take place until Nov. 24.

Separately, Finance Ministry budgeting director general Askolani said that budget absorption should be increased to maintain the growth of government and household spending, which support the economy. The central government strives to reach a spending realization of 98 percent this year.

“The point is we will strive to boost the economy with our spending policies, but efficiency will still be the name of the game as tax revenue is also low,” Askolani said.

In the 2019 state budget, state spending is set at Rp 2.461 quadrillion and state revenue at Rp 2.165 quadrillion.

In the next two months, the government will boost its absorption of capital, goods and social aid spending. As of October, capital spending was Rp 1 quadrillion or 53.2 percent of the ceiling, goods spending was Rp 236.5 trillion (68.6 percent) and social aid spending was Rp 91.7 trillion (94.5 percent).

Askolani said the government would make efforts to reach 90 percent of capital spending realization by year’s end. Capital absorption is expected to increase as a majority of physical activities is complete.

Increased absorption is combined with capital spending savings from multiyear projects and auctions.

Budget disbursement needs to wait only for the completion of documentation and reporting. Capital spending can be 1-2 percent higher than in 2018.

“Increased absorption is combined with capital spending savings from multiyear projects and auctions,” he explained.

A National Development Planning Agency study found that every for 1 percent increase in spending by state ministries and bodies, the economy grows by 0.06 percent.

Faisal said creating jobs through government spending and investment must be maximized. This way, public spending will be maintained to support economic growth.

However, looking at the latest conditions, Faisal said he predicted Indonesia’s economic growth this year would not reach the target of 5.3 percent. He predicted economic growth to be 5-5.05 percent.

Social aid

Indonesian Institute of Sciences (LIPI) researcher Maxensius Tri Sambodo suggested central and local government spending be pushed to chase the economic growth target in the remainder of the year. Existing social aid budgets can be disbursed to boost public consumption.

As Askolani explained, the government strives to maintain the poor’s purchasing power by pushing for social aid spending to reach 100 percent or Rp 97.1 trillion. Social aid includes the family hope program, contribution assistance recipients of the Healthcare and Social Security Agency (BPJS Kesehatan), noncash food aid and disaster management aid.

The Organization for Economic Cooperation and Development (OECD) projects a 5.2-percent growth, while the Asian Development Bank (ADB) projects a 5.1-percent growth.

“Spending strategy is optimized to maintain household consumption growth above 5 percent in the condition of an economic growth slowdown,” he said.

Indonesia’s economy is projected to grow by 5 percent in 2019 by the International Monetary Fund (IMF) and the World Bank. The Organization for Economic Cooperation and Development (OECD) projects a 5.2-percent growth, while the Asian Development Bank (ADB) projects a 5.1-percent growth.

SME

Meanwhile, the Cooperatives and Small and Medium Enterprises Ministry has made efforts to boost the contribution of micro, small and medium enterprises (MSMEs) to the economy.

Data from the Indonesian MSMEs Association shows that MSMEs nationwide absorb 95 percent of the country’s manpower and contribute to 64 percent of the nation’s GDP. BPS data shows that Indonesia’s GDP in 2018 was Rp 14.837 quadrillion.

Cooperatives and Small and Medium Enterprises Minister Teten Masduki in a visit to Kompas office on Tuesday said that this could be achieved by boosting MSME products’ role in export performances. He said that President Joko “Jokowi” Widodo had ordered him to boost MSMEs’ contribution to exports from 14 percent to 50 percent by 2024.

Previously, Teten said, MSME development policies have been using the community or cluster approach based on production hubs, commodities or regions.

However, in order to boost MSMEs’ roles, the government will require more detailed data.

“Therefore, funding and training are bigger. The government will also implement varied approaches MSMEs at different business scales have different needs,” Teten said.

However, in order to boost MSMEs’ roles, the government will require more detailed data. United Indonesia MSMEs committee chair Yoyok Pitoyo said that, currently, there were overlapping MSME data between state ministries and bodies. (KRN/CAS/JUD/ERK