GROWTH ACCELERATION: Infrastructure Spending Starts Rolling

April 30, 2015, Bisnis Indonesia, Page: 1, Section: Front Page News

JAKARTA – Finance Minister, Bambang Brodjonegoro, has affirmed that government expenditure and spending by State-Owned Enterprises (BUMNs), especially with regard to infrastructure, will start running from April, so as to bring economic growth in the next three quarters.

The statement was made to reassure investors, following the stock market movements that have  stumbled in the last two days because of the strengthening expectations of a sharper economic slowdown than initially expected.

“What is important [we] show the actual expenditures, which indeed mostly just begin to roll in April,” he said, Tuesday (28 April).

The Composite Stock Price Index (IHSG) fell 0.7 percent to the level of 5,208 at the close of trading on Tuesday (28 April), after falling 3.5 percent the previous day. The rupiah followed suit with a depreciation of 0.2 percent to the position of Rp 13,010 per US dollar, continuing its 0.5 percent weakening a day before.

The sagging performances of listed companies in the first quarter of 2015, which were marked by profit figures below estimated levels, have confirmed expectations of a deeper economic slowdown.

The expectations of a slowdown are at the same time a manifestation of market hesitation on the commitment of the government to realise its promise for accelerated infrastructure projects. In the same period last year, GDP growth slowed down to just 5.2 percent, which had continued in the following quarters.

Bambang did not deny that growth in the first quarter of 2015 would slow down. He pointed to weakening commodity prices, which have been exacerbated by a correction in crude oil prices, as the main cause of the slowdown. However, the Finance Minister expects growth in January – March at still around five percent.

Nevertheless, he asserted that the [economic] performance in the first three months could not represent the whole picture of this year. Growth, he said, will be accelerated starting in the second quarter of 2015 and will continue in the subsequent quarters, so that the initial target of 5.7 percent will be realised.

Minister of Public Works and People’s Housing (PU-Pera), Basuki Hadimuljono, said that the government will launch the construction of a number of infrastructure projects worth Rp 124 trillion today and tomorrow (30 April).

Those projects that are ready to begin construction is the building of one million houses with a total investment of Rp 62 trillion, construction of Solo – Ngawi – Kertosono toll road along 177km worth Rp 9 trillion, and the development of Merak – Bakauheni – Bandar Lampung – Palembang – Tanjung Api-api (MBBPT) area, with a total project value of Rp 53 trillion.

“President Jokowi will directly attend and perform the ground breaking [pole erection] ceremony[ies] for the three projects,” he said.

Minister of National Development Planning/ Head of Bappenas, Andrinof Chaniago, said that the government plans to double its infrastructure spending in fiscal year 2016.

“Indeed, the infrastructure programme will double, and automatically the budget will double also [in] 2016,” he said after opening the Pre-Musrenbangnas [National Development Planning Meeting], Tuesday (28 April).

In Revised State Budget (APBN-P) of 2015, the government has allocated up to Rp 290.3 trillion for infrastructure spending, an increase of 63.18 percent from the realisation of APBN 2014, which only recorded Rp 177.9 trillion. This means that infrastructure spending for fiscal year 2016 will amount to more than Rp 500 trillion.

He said that over the next five years the government has sectoral priorities, namely food, energy, marine and maritime, tourism and manufacturing industries. In addition, there is priority given to border regions, rural and suburban areas and outlying areas.

“To achieve all those, infrastructure is needed; yes the infrastructure is to achieve the goals. We are targeting to prioritise development improvements and reduction in poverty rate,” he said.

Standard Chartered Bank’s economist, Eric Alexander Sugandi, said that the most important thing of the budget is its change in the pattern of spending realisation, rather than just the value. This is because, in this year the government has failed to realise its capital spending plan, which it has promised to be faster than in previous years.

According to the government’s actual spending [data] in realtime, until 28 March 2015, actual expenditures of 10 ministries/ agencies with the largest budget ceiling amounts were only Rp 3.51 trillion, or 2.1 percent of the total ceiling amount of Rp 171.06 trillion.

Meanwhile, in terms of the ceiling amount of all the ministries/ agencies, which touches the figure of Rp 263.68 trillion, only 2.8 percent, or the equivalent Rp 7.32 trillion has been spent.

“The market does not have high hopes in the government; its spending has been late. The expenditure pattern should have been changed from the beginning; it should not accumulate towards the end of the year, as its impact on growth becomes small,” said Eric.

The research group of DBS Bank, a Singapore-based bank, said that the key to accelerated growth this year is held by the government through its capital expenditures. (Kurniawan A. Wicaksono/ Fitri Sartina Dewi) 

Infrastructure Budget 2013 – 2015
(Rp Trillion)

Distribution Actual 2013 APBNP 2014 APBNP 2015 *)
Kemen PUPR (Ministry of Public Works and People’s Housing) 63.5 63.8 105
Kemenhub (Ministry of Transportation) 26 27.3 52.5
Kemen ESDM (Ministry of Energy and Mineral Resources) 7.7 9.3 5.9
Other ministries/agencies (K/Ls) 35.9 45.7 46.4
Total K/Ls 134.9 149.4 209.9
Non K/L 21 28.5 80.5
Total 155.9 177.9 290.3

Source: APBNP 2015

Three Projects Whose Construction has Commenced
(Rp Trillion)

Programme for a million homes:  62
Solo – Ngawi – Kertosono Toll Road: 9
Development of MBBPT *) Region: 53

Source: Ministry of PU-Pera
Note: *) MBBPT = Merak – Bakauheni – Bandar Lampung – Palembang – Tanjung Api-Api

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