JAKARTA — Indonesia plans to increase spending on the country's overburdened
roads, airports and power plants and pare down restrictions on businesses to
encourage investment and allow Southeast Asia's largest economy to continue to
grow, President Susilo Bambang Yudhoyono said Thursday.
Unveiling his program to keep the
country's economy expanding, Mr. Yudhoyono said Indonesia needs to boost
spending on ports, roads, power plants and other infrastructure by 15% next
year, as well as reduce the number of regional regulations on business and
fight corruption.
His budget proposal for
2013—which must gain parliament approval—is to reduce the country's deficit to
1.6% of gross domestic product next year, down from a target of 2.23% this
year.
Mr. Yudhoyono's moves are aimed
at ensuring that Indonesia continues to clock some of the strongest growth in
the world, even as much of the globe struggles with slowdown. With his last
term scheduled to end in less than two years, he hopes to leave a legacy of
better incomes and opportunities for Indonesia's 250 million citizens.
Economists say the best way to make that happen is for Indonesia to spend less
on government-subsidized fuel and more on the country's network of railroads,
bridges and other infrastructure.
The president predicted that even
with the debt problems in Europe, Indonesia would see growth of 6.8% in 2013,
up from the 6.5% he expects this year.
"We can survive the global
[debt] crisis," he said. "Our economic fundamentals are strong, our
fiscal health is relatively good and poverty and unemployment are falling.
These facts are all encouraging."
While Indonesia's economy has
expanded more than 5% in seven of his eight years in office, President
Yudhoyono and his Democratic Party have been struggling with sliding approval
ratings.
Recent surveys show that voters
are fed up with high-profile corruption cases involving members of the ruling
party. The president needs to ensure that Southeast Asia's largest economy
continues to grow, analysts say, if he wants his party and its choice for his
successor to have any chance in the national elections scheduled for 2014.
One of the biggest restraints on
further growth, analysts and executives said, is the country's overburdened
infrastructure. Traffic jams are boosting delivery costs and times. A lack of
power is restricting capital investment. Meanwhile, delays at the country's
outdated airports and ports are slowing the flow of exports. These bottlenecks
are not only putting pressure on the inflation rate through added costs, but
they have also helped to worsen the country's trade balance as consumers and
companies are forced to import goods and materials to feed growing demand.
"GDP growth exceeding the
6.0% to 6.5% level for a prolonged period of time does pose overheating risk,
especially if existing supply-side bottlenecks are not addressed," said
Philip McNicholas, sovereign-debt analyst at Fitch Ratings.
Mr. Yudhoyono's budget proposed
lifting infrastructure spending to 194 trillion rupiah ($20 billion) in 2013
from a target of 169 trillion rupiah this year. He The fund will be used to
improve 4,431 kilometers of road, add 380 kilometers of new railway, and
finance construction of 15 new airports and the expansion of another 120.To
encourage local and international investment, said he planned to abolish more
than 800 regional restrictions on businesses that clash with the national
regulations.
He said the government will also
try to streamline the process companies have to go through to get their
investments approved. Executives in Indonesia often complain that unclear and
conflicting regulations keep them from investing more as they have to deal with
multiple regulators at the national and local levels.
Regulatory confusion
"creates an uncertain, high-cost economy and hurts our chances for higher
and better quality growth," Mr. Yudhoyono said.
Whether Mr. Yudhoyono will push
through the much-needed spending and reform remains to be seen. The sliding
popularity of his party seems to be keeping him from making the tough decisions
needed to turbocharge growth, analysts said. His embarrassing failure in March
to get approval for a much-needed increase in subsidized fuel rates, is the
latest example of how the ruling party seems to have lost its ability to lead.
The president said Thursday that
the country's energy-subsidy bill would likely balloon 36% to 275 trillion
rupiah in 2013, up from 202 trillion rupiah this year.
While commodities exports and a
giant and growing middle class will continue to power Indonesia's economy,
economists said, it needs to follow through on plans for reform and spending if
it wants to become the next big Asian country to experience decades of steady
growth. Without reforms it risks becoming the next Vietnam, which saw its
growth rates plunge as it struggled with inflation.
"I'm not very
optimistic," said Franky Sibarani, chairman of the Indonesian Food and
Beverage Producers Association.
"What I've seen among the
bureaucracy is that there is no sense of urgency yet. The investment climate
must be improved."
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