ASEAN KEY DESTINATIONS
Projects in limbo after state budget cuts
The second round of state budget cuts may lead to delayed infrastructure projects and lower economic growth, although priority projects will not be affected as the country struggles to fill in a huge infrastructure funding gap.
Construction of non-priority infrastructure projects will be disrupted and delayed following the state budget cuts, according to the Public Works and Public Housing Ministry, which is responsible for state infrastructure projects.
“Following the Rp 6.9 trillion [US$517.5 million] cut, we’ll have to adjust projects that have not been tendered and single-year packages whose progress is unsatisfactory and reschedule multi-year projects,” the ministry’s secretary-general Taufik Widjoyono said recently. It previously suffered from an 8.4 trillion budget cut in the first round earlier this year.
Priority projects scheduled for completion this year, such as the trans-Papua and trans-Java toll roads, will not be affected, he added.
President Joko “Jokowi” Widodo cut the revised 2016 state budget for the second time recently in a Presidential Instruction (Inpres) that shaved Rp 137 trillion off spending because of a Rp 219 trillion revenue shortfall as the government admitted it had previously set tax targets too high.
“I predict that there will be a lot of projects on which construction has yet to be started that will be postponed to next year,” said Kenta Institute senior economist Eric Sugandi, predicting the budget cuts would reduce the multiplier effects on economic growth from government spending.
Bank Central Asia (BCA) chief economist David Sumual said a cut in infrastructure spending would affect economic growth, more so than a reduction in routine expenditure, so that the government should carefully pick components to reduce.
Finance Minister Sri Mulyani Indrawati on Thursday evening further slashed the economic growth forecast for this year to between 5 and 5.1 percent, from previous expectations of 5.2 percent, on the back of the budget cuts.
Jokowi’s “Jokowinomics” puts infrastructure development high on top of the nation’s economic agenda as bottlenecks have hindered Indonesia from growing at its fullest potential of 7 percent, having scrapped a multi-billion rupiah fuel subsidy to direct the saved money toward capital expenditure.
The infrastructure funding gap in Indonesia is the biggest in ASEAN as current spending plans projected $441 billion, while the projected total requirement reached $1,162 billion, according to data from HSBC Global Research.
“Indonesia’s large funding gap is unlikely to be filled without a much more aggressive policy by the government to attract private funds,” HSBC Global Research wrote in its latest “ASEAN Perspectives” report.
To ensure steady infrastructure projects in the future, construction business groups expected the government to keep priority projects intact this year and instead slash funding for projects that face difficulties in land procurement, said Indonesian Construction Association (AKI) secretary-general Zali Yahya.
“We hope steel usage for major projects won’t be disturbed and done based on the President’s initial vision, so national steel products will be prioritized,” Indonesian Iron and Steel Industry Association (IISIA) executive director Hidayat Triseputro said.
The Public Works and Public Housing Ministry’s director general of water resources Mudjiadi made assurances that the ministry would prioritize cutting the budgets that were related to procurement and work travel.
“But we are also reviewing contracts that may get delayed for completion because of land acquisition issues. The guidance is that the cuts will not occur in strategic projects,” he said. As of Wednesday, the ministry has only disbursed 46 percent of the Rp 90.2 trillion earmarked in the revised 2016 state budget.
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Indonesia to launch 13th economic package this month
Coordinating Economic Minister Darmin Nasution said on Wednesday that the government would release its 13th economic policy package in August, adding that the draft had been completed.
Darmin said the 13th package was largely an extension of the previous one, but would expand its focus beyond industry. The 12th package focused on small and medium enterprises.
"We are just waiting to schedule a meeting with the president," Darmin told reporters at his office. He refused to give the exact date the new policy package would come into effect.
The ministry team must meet with President Joko "Jokowi" Widodo one more time to finalize the details, Darmin said.