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Fuel subsidy reallocation a 'positive sign'for infrastructure development: Analyst
DBS Group Research analyst Gundy Cahyadi says the government's redirection of 50 percent of the savings from the slashed fuel subsidies toward capital expenditures bodes well for infrastructure development
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BS Group Research analyst Gundy Cahyadi says the government's redirection of 50 percent of the savings from the slashed fuel subsidies toward capital expenditures bodes well for infrastructure development.
'For the first time in 10 years, the country's state budget plan (RAPBN) has exceeded energy subsidy funds,' Gundy said as quoted by Antara news agency in Jakarta on Wednesday.
Gundy added that optimism was running high that the government's infrastructure targets could be met. The construction sector was the sector with with the best performance in the 2014 Jakarta Composite Index, recording a 150 percent improvement.
"Government bonds have also continuously showed a positive trend, anticipating possible ratings-increases by Standard Poor [S&P],' he said.
Gundy said said three factors were burdening Indonesia's macro-economy; expensive fuel subsidies, poor infrastructure, and external liquidity conditions currently prone to pressures.
Commenting on the external liquidity condition, Gundy said Bank Indonesia (BI) had issued a new regulation that protected foreign currencies used in local companies.
'This will be helpful in reducing the risks of imbalances between asset values and liability in each currency [currency mismatch risks],' he said.
Gundy said markets could respond negatively if the government failed to prioritize the infrastructure sector. After cutting the fuel subsidies, the government's next challenge was to show rapid progress in its infrastructure development, he added.
'Financing from the government can be allocated to cover 40 percent of total infrastructure projects until 2019, worth US$450 billion,' he said.
He said fiscal policies in Indonesia were crucial in determining the success of infrastructure development.
He added that optimizing tax revenues was also an important factor, especially because Indonesia had the lowest tax-revenue ratio Gross Domestic Product (GDP) ratio among the five ASEAN countries, including Malaysia, Singapore, Thailand and the Philippines. (ebf)(+++)
