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Jakarta Post

High growth needed, but welfare more important

Unlike previous years, the revised 2015 state budget proposed by President Joko “Jokowi” Widodo does not only contain macro-economic targets but also social welfare indicators to ensure economic growth does not only benefit the rich

Tassia Sipahutar (The Jakarta Post)
Jakarta
Fri, February 13, 2015

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High growth needed, but welfare more important

U

nlike previous years, the revised 2015 state budget proposed by President Joko '€œJokowi'€ Widodo does not only contain macro-economic targets but also social welfare indicators to ensure economic growth does not only benefit the rich.

In the revised budget, the government adds two indicators as targets, Gini ratio and Gini index and Human Development Index (HDI).

The Gini ratio '€” on a scale of 0 to 1 '€” is used to describe wealth distribution, with low numbers attributed to greater wealth equality, while HDI is a United Nations'€™ tool used to measure human development'€™s three key features: health, education and standard of living. At present, Indonesia is listed as a country with '€œmedium human development'€ by the UN.

In the budget, the government sets the targets for the Gini at 0.4 and the HDI at 69.4, while other welfare indicators, such as unemployment and poverty rates, are set at 5.6 percent and 10.3 percent, respectively.

The Gini indicators did not change much from what were recorded in last year'€™s revised state budget. In the previous budget, the Gini index, which reached 0.413 in 2013, was not formally stipulated as part of the economic and welfare assumptions that have to be achieved

In 2014, the unemployment rate was between 5.6 and 5.9 percent and the poverty rate was estimated at 9 to 10.5 percent. The figures were based on assumptions made by the Central Statistics Agency (BPS).

The open unemployment indicator cited by BPS is deemed inaccurate by many economists. To accurately capture the unemployment landscape, the number for open unemployment is usually combined with the BPS'€™ so-called '€œhalf unemployment'€ figure.

Based on the combination of both, Indonesia'€™s unemployment rate was above 20 percent based on BPS employment figures from August last year.

Among lawmakers that insisted on inserting additional measurements were Mohammad Hatta, a National Mandate Party (PAN) politician, and Johnny G. Plate, a lawmaker from the NasDem Party.

Hatta said the unemployment and poverty rates were crucial to indicate how far the state budget could go to create economic multiplier effects. '€œVarious targets in the budget must be able to produce new jobs,'€ he said.

The revised budget draft shows that the government is planning to spend up to Rp 1.98 quadrillion (US$155.49 billion) in 2015, a 7.4 percent increase from last year'€™s spending.

Central government spending remains the largest part of the total spending with Rp 1.32 quadrillion, followed by regional transfer funds and village funds at Rp 661.6 trillion.

However, economists interviewed by The Jakarta Post doubted that drastic multiplier effects from the state budget could be realized right away this year.

According to UOB economist Ho Woei Chen, many of the big projects that the government has proposed '€” most of which focus on providing infrastructure '€” will need a longer period of time to materialize.

'€œThe key idea here is that every dollar invested in infrastructure projects brings a potential return of more than a dollar. The building and construction sector, as well as the supporting industries, will start to feel the direct impact as more job opportunities are generated,'€ she said in an email.

 The availability of job opportunities, Ho added, would indirectly improve private consumption demand for the economy and improve living standards over time.

Taimur Baig, Deutsche Bank chief economist for Asia, voiced a similar opinion, saying that while those projects were worthy of investment, they would take time to provide growth dividends.

'€œWe see little immediate impact of the planned spending, other than some boost to employment and income,'€ he told the Post.

Meanwhile, I Kadek Dian Sutrisna, director of the Institute of Economic and Social Research (LPEM) at the University of Indonesia, said that such multiplier effects might even be missed this year, especially as a result of an '€œoveroptimistic'€ economic growth target.

Citing 5.3 percent as the realistic estimate, he said that the government'€™s expectation of reaping Rp 1.76 quadrillion in state revenue would be out of the question if it failed to attain the 5.7 percent economic growth.

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