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Govt gets ready to spur growth
The government pledged on Wednesday to undertake concerted measures to reverse the growth slowdown that economists have described as a wake-up call for President Joko âJokowiâ Widodo and his ambitious economic targets
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he government pledged on Wednesday to undertake concerted measures to reverse the growth slowdown that economists have described as a wake-up call for President Joko 'Jokowi' Widodo and his ambitious economic targets.
The President highlighted 'every line' of funds available to be disbursed and instructed the relevant ministries to quickly begin the projects, Coordinating Economic Minister Sofyan Djalil said after a meeting at the State Palace.
The minister said Jokowi paid specific attention to the Public Works and Public Housing Ministry, which is responsible for most government infrastructure projects, as it had been ordered to cut bureaucratic red tape and quickly finalize project tenders.
'The ministry has the biggest earmarked funds but still grapples with the problems of changes in nomenclature and the reelection of some officials within the ministry,' said Sofyan. 'There were a lot of bureaucratic complications, but they have been resolved.'
Besides Sofyan, Vice President Jusuf Kalla and Finance Minister Bambang Brodjonegoro also attended the meeting that centered on efforts to reverse the economic slowdown.
'For the rest of 2015, we are committed to reversing the slowdown pattern through the acceleration of government spending, especially for infrastructure projects that were already earmarked for ministries and state-run enterprises,' said Bambang.
In the first quarter of the year, the economy grew by 4.7 percent year-on-year (yoy), the slowest level in six years. The main laggard was government spending, which grew by a mere 2.2 percent. By comparison, consumer spending accelerated by 5 percent while investment surged by 4.3 percent.
As of April, only Rp 7 trillion (US$539 million) had been disbursed for capital expenditure (capex), a main yardstick of government spending that includes funds for ministry investment and infrastructure projects. That was only 2 percent of total capex funds of around Rp 290 trillion earmarked in the revised 2015 state budget.
In the morning, Jokowi also summoned Bank Indonesia (BI) Governor Agus Martowardojo, but the official said that his meeting with the President mostly centered on the latest developments in inflation and how to reduce prices at the regional level.
The central bank governor, however, stated that he was aware of the recent economic slowdown and that the central bank was currently preparing policy measures to support economic growth.
'Bank Indonesia will respond through a policy mix of exchange and policy rates, reserve requirements, macro-prudential measures, communication, cooperation between central banks and coordination with the government,' Agus stated.
In February, BI slashed its key interest rate by 25 basis points to 7.5 percent to support growth. However, analysts have said that the central bank will have limited room to loosen its monetary policy in the coming months given the renewed pressures on inflation and the exchange rate.
'A complicated situation is faced by the central bank,' noted Dian Ayu Yustina, an economist with Bank Danamon in Jakarta.
'Lowering the interest rate will not be effective if it means more pressure on the rupiah, as the rupiah weakness will also impact the economy,' she argued. 'We think loosening through macro-prudential policies should have been the better option.'
From the fiscal side, the government is also mired in dilemma as a further spending boost could risk enlarging the budget deficit, given the shortfall in tax revenues, economists have warned.
As of April 30, the government collected Rp 310.1 trillion in taxes, or 1.3 percent less than the same period last year.
Meanwhile, the Jokowi administration is aiming for tax collection to grow by 30 percent yoy to hit Rp 1.29 quadrillion by the end of 2015.
'Fiscal boost can help, but there is a limit to how much the government can unleash the fiscal tap with revenue constraints and potential budget slippage,' Credit Suisse economist Santitarn Sathirathai wrote in an emailed note distributed to clients on Wednesday.
'Some cutback in spending is still necessary as state revenue will likely surprise materially on the downside.'
