Jakarta – Indonesia will maintain a conservative fiscal policy despite pressure to fast-track infrastructure projects, the Coordinating Economic Ministry says, insisting on public-private partnership (PPP) schemes.
"We will continue to promote Public Private Partnership [PPP] programs focusing on the improvement of our infrastructure facilities, instead of burdening our state budget with excessive infrastructure development costs," Coordinating Economic Minister Hatta Rajasa said on the weekend.
Government spending should be allocated only to infrastructure development projects that are not attractive to private investors, he said.
"With better infrastructure we will more competitive, but we cannot depend too heavily on the state budget to develop our infrastructure," he said, responding to a 2010 World Economic Forum (WEF) report saying that Indonesia should improve its infrastructure.
The report, issued Sept. 9, says Indonesia has improved its competitiveness through a more sound and sustainable macroeconomic environment and improved education indicators amid the ongoing global financial crisis.
However, Indonesia had failed to reach its full potential for growth because of bottlenecks in infrastructure development, the report says.
Hatta played down the comments suggestions saying the government would have to increase its budget deficit of Rp 115.7 trillion (US$12.84 billion) or 1.7 percent of GDP in its 2011 budget, if it wanted to accelerate infrastructure development.
"A 1.7 percent budget deficit of the GDP is quite prudent for us," Hatta said, adding that this would support economic growth of 6.3 percent in 2011. The government may not be able to finance all infrastructure development projects, he said, even if it used all the state budget by imposing a 3 percent deficit, because this would require massive amounts of funding, he said.
Finance Minister Agus Martowardojo also said a 1.7 percent deficit would be sufficient to maintain a sound state budget.
"We shouldn't make the budget deficit too big. The most important thing for us is to maintain a positive primary balance and reduce our debt-to-GDP ratio," he said.
The government is targeting a 27.8 percent debt-to-GDP ratio at the end of this year, as stipulated in the revised 2010 budget.
"This is part of our effort to maintain a sound and sustainable budget. In this regard, we have to prevent an increase of the budget deficit, while promoting a positive primary balance and decreasing the debt-to-GDP ratio," Agus said, adding that a budget deficit of more than 2 percent would cause a negative primary balance.
Hatta said there were huge opportunities in PPP programs for the development of infrastructure, introduced in 2005. However, none had been accomplished because they were impeded by three main obstacles: difficulties in land acquisition, the complexity of PPP project procedures and a lack of financing.