Andi Haswidi, Jakarta – With the public purse strings still tight and most government spending being used to cover day-to-day costs and servicing the country's sovereign debt, Indonesia will have to rely on the private sector to help reduce poverty and unemployment.

Vice President Jusuf Kalla said Wednesday that Indonesia would need at least Rp 1,000 trillion (about US$111 billion) in new investment in order to achieve higher economic growth, which was essential to significantly reducing the country's currently high poverty and unemployment rates.

"The money, of course, should come from three sources, the government, the private sector and foreign investment," Kalla told a conference on public policy held by the Prakarsa Group, an NGO focused on social welfare issues.

Kalla said that the current growth rate was not sufficient to alleviate poverty and unemployment. In order to create significant numbers of new jobs, growth would need to be at least 7 percent. "For this, we will need Rp 1,000 trillion in investment," he said.

According to government estimates, every one percent growth in GDP creates 250,000 new jobs.

The government failed to achieve its 6.2 percent growth target last year, with the figure ending up at 5.5 percent due to disappointing consumer spending growth of 3.2 percent growth and direct investment growth of 2.9 percent. The government is targeting a growth rate of 6.3 percent this year.

Speaking to The Jakarta Post at the conference, Prakarsa executive director Binny Buchori said that the government had yet to develop a comprehensive policy on social welfare.

"There is a disconnection between the improvements in the macroeconomic fundamentals and poverty alleviation. So far, the government's actions have only been ad hoc in nature, reactive."

"We don't have the proper infrastructure for health insurance, social security or occupational insurance, and we don't invest enough in education. If we did, it would obviously produce more sustainable benefits compared to giving direct cash handouts to the poor following the fuel price hikes," Binny said.

The poverty rate stood at about 17 percent of the country's 220 million people last year, according to the Central Statistics Agency (BPS), which categorizes people living below the poverty line as those who earn less than $1.55 a day.

Poverty alleviation has always been on government's priority list, Kalla said. However, the government did not have the money to make a significant dent in poverty as it had to allocate 45 percent of this year's Rp 763 trillion budget for subsidies and debt servicing alone. According to figures from the Finance Ministry, the government plans to spend Rp 54.8 trillion on amortization, Rp 85 trillion on interest payments and Rp 134.9 trillion on subsidies this year.

"The development budget stands at roughly Rp 150 trillion. Given this situation, it is hard for the government to make big investments and spend its way to higher economic growth, both of which are the basic requirements for poverty and unemployment alleviation," Kalla said.