Draft 2008 Budget Boosts Infrastructure Spending

JAKARTA ~ President Susilo Bambang Yudhoyono unveiled a draft state budget for 2008 on Thursday, focused on boosting infrastructure spending, with a deficit up 21 percent on this year’s estimate.

The budget forecasts growth in 2008 for Southeast Asia’s largest economy at 6.8 percent, up on the 6.3 percent expected for 2007.

The budget deficit is expected to be US$8.24 billion, comprising 1.7 percent of gross domestic product (GDP).

“The rise in the budget deficit is linked to the government’s fiscal policy orientation of providing fiscal stimulus to the economy,” Yudhoyono said in his annual state-of-the-nation address.

The budget sees state receipts coming in at Rp761.4 trillion ($83.7 billion), up 11.2 percent on the current budget. Expenditures are expected to reach Rp836.4 trillion, 12.05 percent up from 2007.

Government expenditure is projected to reach Rp564.6 trillion, 14.3 percent up on the 2007 budget, with capital expenditure to soar 48.6 percent to Rp101.5 trillion compared to this year.

Social assistance will also rocket by 41.8 percent, to Rp67.4 trillion.

“The government is determined to become increasingly focused in its fiscal policies to develop and repair infrastructure that is strategic to the economy, and to increase programs to enhance education, health and the prosperity of the poor,” Yudhoyono said.

Indonesia’s creaking infrastructure – crumbling roads, dwindling electricity supplies, a dearth of public transport – is seen as a growing obstacle to attracting much-needed foreign investment.

Several ministries are set to receive substantial injections of funds.

The Public Works Ministry’s budget allocation will rise 41.1 percent to Rp35.6 trillion, for building roads, and rehabilitating and maintaining existing ones, Yudhoyono said.

The Transport Ministry’s allocation will jump 64.1 percent to Rp16.2 trillion to expand the railway network, maritime transport and airports.

Education will receive a boost in funding of Rp48.3 trillion, more than double its 2005 budget, the president said, while the Health Ministry’s budget will almost triple since 2005 to Rp18.8 trillion.

Chatib Basri, an economist from the University of Indonesia, said that the budget was “precisely the type that is needed” to speed up growth and alleviate poverty.

“Conceptually, this is a good budget. The problem will be how to make it work,” he said, adding that a decentralization program in place for several years left local governments on “the frontline” for delivering services.

“Issues such as how the funds can reach them and how they use them are important,” he said.

The bulk of revenue to support spending is expected to come from taxes worth Rp583.7 trillion, 19.1 percent up from this year.

Non-tax revenue is set at Rp175.6 trillion for 2008, or Rp16.2 trillion less than the target this year due to various reasons, including declining receipts from state company profits, Yudhoyono said.

Yudhoyono warned that the success of the budget would be dependent on factors such as an average oil price for 2008 of $60 per barrel and an average exchange rate of Rp9,100 to the dollar.

He said the government was carefully managing its finances.

“Leakages, corruption and abuses should be prevented. The government continues to hold a high level of commitment to manage the budget in a clean, efficient and responsible way,” he said.

Yudhoyono was elected on an anti-corruption platform and his tenure has seen a crackdown on graft, though critics say he has failed to net major players still connected with former president Suharto, who stepped down in 1998.

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