Much touted as a key driver for growth amid the global economic slowdown, government spending remains slow so far this year, which will eventually contribute to slower economic growth, experts say.
As of Aug. 14, government spending reached just 48.11 percent of the targeted full-year spending of Rp 988.1 trillion (US$98.6 billion) - as stated in the stimulus document of the 2009 state budget - according to the directorate general of state treasury at the Finance Ministry.
The so-called stimulus on infrastructure projects also had a low distribution as of Aug. 18, just 12.61 percent of the Rp 12.2 trillion targeted, said Herry Purnomo, director general of treasury, over the weekend.
The Public Works Ministry and Transportations Ministry - which have received a large allocation of the stimulus, with Rp 6.6 trillion and Rp 2.2 trillion respectively - spent only 15 percent and 12.5 percent of their allocated budget, despite both of the ministries being highly responsible for the all important infrastructure projects in the country.
Such slow spending has been criticized by the business community and analysts alike as a factor hampering growth, particularly as people's purchasing power, the main driver of the economy, declines due to the global economic downturn.
The slower than expected spending has also disturbed the financial system as the government's money remain idle in banks, while it is supposed to be spent to generate the economy, said Purbaya Yudhi Sadewa, chief researcher of Danareksa Research Institute.
"There is a multiplying effect. But *being idle* has disturbed our financial system, making lending rates unable to decline and contributing to a tight liquidity."
Danareksa forecasts the economy will grow by 4.8 percent, lower than its initial estimate of 5.9 percent.
Lending rates have now declined to hover at about 14 percent, although they are supposed to go down to 11 to 12 percent as the central bank has cut its benchmark interest rate by 300 basis points since December 2008 to 6.5 percent currently, Purbaya said.
Bank Indonesia (BI) senior deputy governor Darmin Nasution said 1 percent of depositors, mainly state-run firms, held more than 50 percent of banks' third-party funds, demanding high deposit rates, making it difficult for banks to cut deposit rates following the central bank's move to cut its benchmark rate.
In a unusual move last week, 14 major local banks decided to cut deposit rates to 150 basis points above BI rate within three months, before reducing it further to 50 basis points above BI rate after three months.
The move is expected to eventually force lending rates to decline, said Darmin. Lower lending rates will reduce borrowing costs for businesses, providing them more funds to expand, thus spurring growth.
Herry said the Finance Ministry plans to send surveillance teams to ministries and government agencies to aid a faster distribution of budget spending, which will hopefully accelerate growth.
