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On-hold capital may limit growth
The government and lawmakersâ decision to freeze state capital injections for state-owned enterprises (SOEs) in the 2016 state budget may retard economic growth, economists have warned
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The government and lawmakers' decision to freeze state capital injections for state-owned enterprises (SOEs) in the 2016 state budget may retard economic growth, economists have warned.
Bank Danamon economist Dian Ayu Yustina said the decision to put the injections on hold was 'unfortunate' since a majority of the recipients were SOEs that operated in infrastructure, including in roads and electricity.
'Denying them the capital injections will hamper their business expansions. Sure, they can still operate using existing capital, but additional capital would increase their business capacity and we need them to work on various infrastructure projects to boost growth,' she said on Sunday.
As reported previously, capital injections worth a total of Rp 40.42 trillion (US$2.91 billion) for SOEs have been put on hold, following the decision on the 2016 state budget made on Friday at the House of Representatives.
The capital recipients list shows that there were 24 SOEs due to receive the funds, with major names such as electricity company PLN, infrastructure financing firm PT Sarana Multi Infrastruktur (SMI) and construction firm PT Wijaya Karya.
PLN was slated to receive Rp 10 trillion in fresh funds, while SMI and Wijaya Karya would obtain Rp 4.16 trillion and Rp 4 trillion, respectively.
Some of the SMEs already received similar capital injections under this year's scheme, which amounted to Rp 64.88 trillion.
However, lawmakers argued that the figure set for 2016 was too large and that this year's capital injections had not even been optimally disbursed. They demanded that next year's funding allocations should instead be channeled to finance other needs.
Lawmakers also demanded that future disbursements of state capital should require approval from related commissions at the House, a prerequisite agreed to by the government, despite having stated in the original 2016 budget draft that it looked 'to increase the SOEs' role in the development process'.
The government stated as well in the draft that it expected the injections into SOEs to help realize its infrastructure targets for 2016, eventually creating 'bigger multiplier effects' for the economy.
Bank Central Asia (BCA) chief economist David Sumual voiced similar concerns to Dian, saying that infrastructure projects, including those run by SOEs, would create multiplier effects.
'The capital injections are connected to a lot of objectives. Capital injections will allow SOEs to work on the projects, attracting investment flows, boosting growth, driving higher tax revenues and so many other things,' he said.
Meanwhile, Samuel Sekuritas economist Lana Soelistianingsih said the delay would have a minimal impact on next year's economic growth ' with the target set at 5.3 percent ' and that the SOEs could issue debt papers as a funding alternative, now that their capital injections had been delayed.
'[The delay] is not an excuse for them not to carry out the infrastructure projects to which they have been assigned.'
However, she acknowledged that putting the injections on hold would send out negative signals, possibly leading investors to question the government's commitment to infrastructure.
'The government should have fought harder to realize its plan,' she added.
Separately, Jasa Marga corporate secretary Mohammad Sofyan said that it was waiting for official notification from the SOE Ministry about the injections.
He said that the toll road operator had already secured necessary funding to work on 10 toll roads, including the Bogor Ring Road, the Semarang-Solo road and the Ngawi-Kertosono road.
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