Urip Hudiono, Jakarta – The government hopes to reduce unemployment and poverty by diverting some routine spending in 2008 to help finance infrastructure development in the regions.
"The higher spending on infrastructure will help spur faster growth, and drive that growth in the direction we want, which is one that creates more jobs and increases earnings among the poor," Coordinating Minister for the Economy Boediono said Friday. "We will start working on this this year, so that the results can be felt in 2008."
The government plans to divert up to Rp 30 trillion (US$3.3 billion) in routine spending from the 2008 budget to capital expenditure, State Minister for National Development Planning Paskah Suzetta said after a meeting Thursday evening between Vice President Jusuf Kalla and the government's economic team.
The cutbacks will mostly affect routine ministerial spending on items deemed excessive, such as travel and seminar costs, with the money then being spent instead on infrastructure projects such as roads and bridges in the regions, Kalla said.
In its mid-year budget revision proposals, the government has proposed a reduction in both routine procurement spending to Rp 62.5 trillion from the Rp 72.1 trillion budgeted at the beginning of the year, and capital procurement spending to Rp 68.3 trillion from Rp 73.1 trillion.
The government hopes to lower Indonesia's open unemployment rate to 5.1 percent by 2009, and the poverty rate to 8.2 percent.
Open unemployment as of the end of February stood at 9.7 percent, slightly down from 10.4 percent a year ago. Meanwhile, Indonesia's poverty rate as of the end of March had similarly decreased to 16.6 percent from 17.7 percent.
Indonesia's economy needs to grow by more than 7 percent per annum to meet the government's unemployment and poverty targets. To achieve a growth rate of 7 percent, the country will need at least $111 billion in new investment this year.
The economy grew by an on-year rate of 6 percent in the first quarter of the year, after slowing down slightly to a full-year 5.5 percent last year from 5.6 percent in 2005.
The Finance Ministry estimates that growth will hit 6.1 percent in the first half, and 6.3 percent for the full year, as targeted. Earlier, Kalla had said that Indonesia should be optimistic about achieving 7 percent growth next year and 8 percent in 2009.
Boediono said Indonesia that Indonesia had been making slow but steady progress in improving the quality of economic growth through increased investment.
"All the economic indicators are showing an increase in investment, accompanied by reductions in unemployment and poverty," he said.
"Investment in particularly improves the quality of our economic growth, because its multiplier effect in creating jobs is greater compared to growth that is built only on consumption."
Nevertheless, Bank Indonesia Governor Burhanuddin Abdullah warned recently of the danger of a widening gap between the haves and the have-nots, and growth that had done little to help reduce unemployment and poverty.
He said how that higher inflation in 2006 had cut into the purchasing power of the poor, while the rich were able to compensate for this by gaining from the boom in portfolio investments and high interest rates.