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FOCUSING ON INFRASTRUCTURE AND POVERTY ALLEVIATION: 2012 Draft State Budget (RAPBN) Expenditure Totals Rp 1,400 Trillion

By Novy Lumanauw and Kunradus Aliandu

JAKARTA - The government has submitted the draft 2012 state budget (RAPBN) with a value of Rp 1,400 trillion, which is up Rp 170 trillion on this year’s budget of Rp 1230 trillion.

In addition, the government is optimistic that next year the poverty rate can be reduced from 13.3 percent to 10.5-11.5 percent and the unemployment rate from 6.8 percent to 5.5-6 percent. The government is also targeting economic growth of 6.7 percent for 2012, which is higher than the APBNP-2011 (2011 amended state budget) target of 6.5 percent.

Meanwhile, the House of Representatives (DPR) and economic observers are hoping for a breakthrough in the Financial Note being presented by President Susilo Bambang Yudhoyono (SBY) to the People’s Consultative Assembly (MPR) and DPR today (Tuesday, 16 August). The government must have the courage to make budgetary savings and cut personnel expenditure and fuel subsidies. The budget must be devoted to building infrastructure, alleviating poverty and creating jobs.

According to Coordinating Minister for Economic Affairs Hatta Rajasa, the 2012 RAPBN, with a total value of Rp 1,400 trillion, is packed with pro-people and pro-growth programmes. In addition to being able to reduce poverty and unemployment, and spur economic growth, the 2012 RAPBN is intended to intensify infrastructure development in line with the Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI) in six corridors, and improve the welfare of the people.

"The government is consistent in reducing poverty and unemployment. There are a number of pro-people and pro-growth policy packages to improve the performance of the national economy," Hatta told Investor Daily before accompanying President SBY in the inauguration of the 2011 Paskibraka (Flag Raising Team) members at the State Palace, Jakarta, yesterday.

Hatta said that there are at least 10 government ministries/agencies (K/L) with substantial budget allocations in the 2012 RAPBN. The largest share of the budget is received by the Ministry of Defence, followed by the Police, Ministry of Public Works, Ministry of Health, and Ministry of Transportation. "The Ministry of Defence remains at the top in terms of budgetary allocations," he said.

He added that although the current budget allocation for education has been included in the local budgets (APBD), the overall budget of the Ministry of National Education continues to account for 20 percent of the state budget.

The government and DPR have so far only agreed on the macro assumptions for the 2012 RAPBN. Among these assumptions are economic growth of 6.6-7 percent, inflation at 4-5.3 percent, interest rates on three-month government bonds (SPN) of 5.5-6.75 percent, a rupiah exchange rate against the U.S. dollar of Rp 8600-Rp 9100, an Indonesian crude oil price (ICP) of US$ 75-95 per barrel, and oil lifting (production) at 950,000 – 970,000 barrels per day (bpd).

New Leap Forward
PDIP (Indonesian Democratic Party of Struggle) faction member Arif Budimanta expressed his hope that the Financial Note presented by President SBY will become a new leap forward. "The government should be more focused on its work plan to improve the people’s welfare," he said.

The government, according to Arif, must re-focus its development agenda in the context of the global economic crisis triggered by the USA and Europe.

University of Gadjah Mada economist Sri Adiningsih stressed the need to develop the manufacturing sector. There is currently a shift in economic power from West to East, being led by China and India. Today in Indonesia it is the micro business sector and the informal sector that have been growing rapidly, while in fact it should be the manufacturing industry.

She added that with the enactment of the ASEAN-China Free Trade Agreement (CAFTA) and the plan to implement the ASEAN Economic Community (MEA) in 2015, Indonesia needs to be absolutely ready.

Hendrawan Supratikno, PDIP faction member of DPR Commission VI, claims that there are currently two diseases plaguing the national economy. "First, there is the high-cost economy disease, which causes corruption to mushroom. This is very clear in the corruption cases of Gayus Tambunan and M Nazaruddin. Second, there is the disease of low value-added economy," he said.

According to him, the government must implement a hilirisasi (encouraging downstream processing) programme, in particular the Ministry of Industry. "This is needed to facilitate high added value for domestic products, which will provide greater economic benefits, particularly in terms of reducing poverty and unemployment," he explained.

Standard Chartered economist Eric Alexander Sugandi said that the 2012 RAPBN should prioritise the budget for infrastructure development. This is because infrastructure development provides substantial multiplier effects for the economy. Eric says that in order to increase infrastructure spending, the government needs to cut the number of civil servants to reduce personnel costs. "The government must also dare to cut fuel subsidies because they are missing the target. Next year, the government should have a clear policy on fuel," he said.

According to Deputy Chairman of DPR Commission XI, Harry Azhar Aziz, the government should be able to reduce some budget allocations in the 2012 RAPBN to help accelerate infrastructure development and poverty reduction.

Regarding the subsidy policy, Harry said, subsidy funds could be saved and diverted to infrastructure development. "If the government is serious, infrastructure spending can be expanded by up to 30 percent. That should be a priority," he said.

Airlangga University Professor Ahmad Erani Yustika says that three are three domestic agendas that must be addressed and encouraged in the 2012 RAPBN. First, the government needs to allocate a budget to strengthen the agricultural and industrial sectors. Second, the government needs to expand the infrastructure budget in the 2012 RAPBN while introducing more stringent supervision, since this sector is prone to corruption. Third, the government must strictly limit the fuel subsidy allocation so that it does not to exceed Rp 50 trillion. "By introducing restrictions, the subsidy allocation can be diverted to leverage the economy of the lower-classes through agriculture, micro and small-scale businesses (UKM), and healthcare," he said.

Erani explained that the government should also be able to improve the efficiency of its capital spending by at least 10-20 percent without reducing the quantity or quality of expenditures. According to him, the 2012 RAPBN faces both external and internal challenges. Internally, there is the lingering problem of low quality budget absorption (utilisation) from year to year. Externally, there is the risk of rising oil prices.

"The government should make a clear and firm decision, that is, set a maximum limit for the fuel subsidy of Rp 50 trillion, and if this is exceeded, then fuel prices must increase," he said.

According to Erani, the government also needs to set aside funds in case the crisis in developed countries deteriorates. This can be done by strengthening the UKM sector and increasing the incentives for export-oriented economic sectors.

According to DPR Commission XI member Abdilla Fauzi Achmad, the government should be very serious in preparing the Financial Note for the 2012 RAPBN, including measures to anticipate the development of the debt crisis in the U.S. and Europe. This is because the potential for a crisis continues to grow, with its associated impacts. "Careful steps are absolutely necessary to steer the national economy away from the damaging impacts of the crisis in the U.S. and Europe," he said.

He explained that the government's willingness to anticipate the global impact should be reflected in the 2012 RAPBN. At the very least, the President should explain the impact to the Indonesian public, and how to respond. "How the government will deal with the impacts of the crisis is what the public is waiting to know," he said. (ef/tri)

Budget, Poverty and Unemployment

  2006 2007 2008 2009 2010 2011*
APBN (Rp Trillion)
State Revenue  637.99 707.81 981.61 848.76 995.27 1,162.35
State Expenditure 667.13 757.65 985.73 937.38 1,042.12 1,229.56
Number (million people) 39.3 37.17 34.96 32.53 31.02 30.02
% poor people  17.75 16.58 15.42 14.15 13.33 12.49
Number (million people) 10.93 10.01 9.39 8.96 8.32 8.12
% unemployment 10.28 9.11 8.39 7.87 7.14 6.80

Notes: * APBN-P (Amended APBN) 2011, Poverty as of March 2011, Unemployment as of February 2011
Sources: Ministry of Finance, BPS