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The government has vowed to increase spending in the capital to drive infrastructure development next year, but economists say that the percentage is insufficient, and larger allocations of the budget still goes to energy subsidies, as President Susilo Bambang Yudhoyono still has not increased fuel oil prices.
Yudhoyono said on Thursday in Jakarta that expenditure for the capital would be raised by 14.9 percent, or Rp 25.2 trillion (US$2.65 billion), in 2013 to Rp 193.8 trillion, in a bid to help achieve the gross domestic product (GDP) target of 6.8 percent from the 6.5 percent targeted this year.
“To improve the effectiveness and quality of state spending, the government consistently raises allocation of the budget to more productive activities, particularly infrastructure development,” he said in his address to a joint plenary session of the House of Representatives and Regional Representatives Council, where a draft of the 2013 state budget was submitted.
In order to support sustainable economic expansion, spending in the capital would be prioritized in order to support energy and food security and domestic connectivity, Yudhoyono said.
The government has allocated around Rp 188.4 trillion for infrastructure projects, including development of transmissions, gas distribution networks, a mini liquefied petroleum gas refinery, the development of 15 new airports and an upgrade for 120 airports, 380 kilometers of railways, 4,431 kilometers of roads nationwide, 100,000 hectares of cultivation areas and 107 hectares of irrigation, in addition to ongoing projects, according to the financial note.
Indonesia Institute of Sciences (LIPI) economist Latif Adam pointed out that despite the government’s claims regarding infrastructure development, this was not well reflected in the 2013 proposed budget.
“The 2.1 percent share of capital spending of the GDP is still very low, as we need at least 5 percent of GDP in capital spending to achieve economic growth of 6.8 percent,” he said, citing job creation as one of the multiplier effects generated from larger infrastructure spending.
The government plans to disburse around Rp 316.1 trillion in subsidies next year, a rise of Rp 48 trillion, or 18 percent, from this year.
Energy subsidies of Rp 274.74 trillion, which are up 35.74 percent from this year, account for 86.91 percent of the total subsidy. The rise is mainly driven by a 15 percent surge in the subsidized fuel quota, which rises to 46 million kiloliters next year.
“The majority of the subsidies are still oriented toward fuel. They should go to non-energy, which could improve productivity of our agricultural sector, for instance,” Latif said.
Non-energy subsidies, which covers, among others, food, fertilizer and seeds, will total Rp 41.4 trillion next year, down by 3.04 percent from this year, the financial note shows.
Institute for Development of Economic and Finance (Indef) economist Ahmad Erani Yustika pointed out that political factors also contributed to the government’s budget.
“2013 is a time for political preparation for the 2014 election, and this is why the government is reluctant to cut the subsidies,” said Erani.