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December 25, 2008

Economic Stimulus:
Indonesia to spend $9.2bn on infrastructure in 2009

Indonesia plans to spend 100 trillion rupiah ($9.2 billion) on infrastructure projects next year in a bid to sustain growth amid a global economic slowdown, Reuters quoted a senior official as saying Wednesday.

The stimulus comes as Indonesia heads for parliamentary and presidential elections in 2009, with economic growth, jobs, reforms and efforts to tackle corruption expected to top the campaign agenda.

"To speed up infrastructure development in 2009, we have started the tenders. So early in 2009 we hope that there will already be construction going on," said Bambang Susantono, a deputy to the chief economics minister, in charge of infrastructure.

"The total is around 100 trillion rupiah, some 70 trillion rupiah will be channelled through ministries and institutions, while 30 trillion rupiah will be transferred to the provinces," he said.

Purbaya Yudhi Sadewa, an economist at Danareksa Research Institute, said economic growth in 2009 could receive a "quite significant" boost if unspent funds from the 2008 budget were carried over and used for infrastructure projects as well.

While Indonesia was one of the main casualties of the 1997-98 Asian financial crisis and took years to recover, its economy has outpaced most of its peers this year, maintaining much of last year's momentum when growth hit a decade high of 6.3 percent.

But as the global economic downturn hits demand for commodities, including Indonesia's key exports such as coal, tin and copper falters, Southeast Asia's biggest economy may struggle to keep up the pace of expansion.

The authorities in Jakarta have taken several steps recently to stimulate growth, including two cuts in subsidised fuel prices so far this month. The central bank, earlier this month cut its key interest rate BIPG by a quarter point in its first easing in a year, anticipating that inflation will keep falling in months ahead.

The government estimates the economy will grow by about 6 percent this year and forecasts 4.5-5.5 percent expansion in 2009.

The sprawling archipelago desperately needs to spend more on infrastructure in order to cut costs and improve efficiency.

Past efforts to invest in this area have stalled, largely due to red tape and legal problems.

Earlier this week, Susantono said that some of the money could be used to improve irrigation systems, helping to lift Indonesia's agricultural output.

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