Thursday, August 19, 2010

President Says Indonesia to Boost 2011 Infrastructure Spending

Jakarta. Indonesia may increase capital spending by 28 percent next year as the government aims to build more bridges and roads to boost growth in Southeast Asia’s biggest economy, President Susilo Bambang Yudhoyono said.

The economy may expand 6.3 percent next year from 6 percent this year, Yudhoyono told the House of Representatives in Jakarta. Capital spending in the 2011 state budget may rise by Rp 26.6 trillion rupiah ($2.96 billion) to Rp 121.7 trillion next year, he said in his speech.

“The increase is the highest compared with those of other expenditures,” Yudhoyono said. “This step, along with steps to improve the budget absorption, will hopefully overcome the various problems and obstacles that have hampered infrastructure development.”

Yudhoyono has pledged to double spending on infrastructure to $140 billion during his second and final five-year term to deliver average growth of 6.6 percent. During his first term, 125 kilometers of toll roads were built, compared with China’s 4,719 kilometers of toll roads last year alone.

“As long as our infrastructure remains underdeveloped the economy cannot expand beyond 6.5 percent without the risk of overheating,” said David E. Sumual, an economist at PT Bank Central Asia. “The government doesn’t have much of a choice but to increase its deficit spending.”

New roads, seaports, and bridges may improve distribution of goods in the world’s biggest archipelago. Indonesia is the world’s largest exporter of power-station coal and the second- biggest exporter of palm oil. Better access may reduce the cost of distribution, helping keep inflation and interest rates low.

A higher infrastructure budget will help build, among other things, 14 new airports, 85.06 kilometers of railways and improve the capacity of 2,613 kilometers of roads, Yudhoyono said.

The government plans to reduce the state budget deficit next year to 1.7 percent of gross domestic product from 2.1 percent of GDP assumed in the 2010 budget, Yudhoyono said.

Finance Minister Agus Martowardojo said on July 26 the budget deficit may be 1.5 percent of GDP this year.

A higher infrastructure budget will help build among other things 14 new airports, 85.06 kilometers of railways and improve the capacity of 2,613 kilometers of roads, Yudhoyono said.

The 2011 state budget draft assumes an inflation rate of 5.3 percent, Yudhoyono said. That compares with a central bank forecast of 4 percent to 6 percent this year. Other assumptions in next year’s budget draft include an oil production rate of 970,000 barrels a day and an average crude oil price of $80 a barrel.

Tax revenue may rise 13 percent to 839.5 trillion rupiah next year, Yudhoyono said. The government also plans to increase the salaries of civil servants, the military and the police by 10 percent next year, he said. It plans to cut subsidy spending by 16.5 trillion rupiah to 184.8 trillion rupiah, he said.


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