Indonesia plans to increase government capital spending by 15 percent next year as President Susilo Bambang Yudhoyono pledges to boost infrastructure that he says is needed to ensure sustainable growth.
Capital spending will rise to 193.8 trillion rupiah ($20 billion) in 2013, Yudhoyono said in his annual budget address in Jakarta recently. The budget deficit may narrow to 1.6 percent of gross domestic product from 2.23 percent, as economic growth is forecast to accelerate to 6.8 percent from an estimated 6.3 percent to 6.5 percent this year, he said.
“We’ll raise capital spending to boost infrastructure in order to support domestic connectivity, energy and food and to support the economy,” the president said, pledging to maintain the fiscal deficit at a “safe level” and reduce debt.
Yudhoyono, who also said he will give civil servants a raise next year, is increasing spending on roads, seaports and airports as he woos investment to spur Southeast Asia’s largest economy. More than a decade after the Asian financial crisis that forced the nation to seek an International Monetary Fund bailout, Fitch Ratings and Moody’s Investors Services have raised Indonesia to investment grade and the country’s growth is among the fastest in the Group of 20 nations.
Still, the president forecast the government’s subsidy spending will expand 18 percent in 2013. He plans to allocate 17.2 trillion rupiah for food and 274.7 trillion rupiah for energy subsidies. Civil servant salaries may rise by an average 7 percent next year, he said.
Easing exports led to a June trade deficit of $1.32 billion, the widest in at least five years, after overseas sales fell 16.4 percent from a year earlier and imports rose 10.7 percent.
The current-account deficit was $6.9 billion in the three months through June, from a $3.2 billion shortfall the previous quarter, Bank Indonesia said this month. The overall balance of payments deficit was $2.8 billion in the second quarter, it said. Bank Indonesia expects the current-account gap to narrow to 2 percent of GDP in the second half and the balance of payments to return to surplus in the same period.
Still, growth in the $847 billion economy unexpectedly accelerated to 6.37 percent last quarter as rising investments countered declining exports.
Indonesia’s foreign and domestic investment rose 28 percent to 148.1 trillion rupiah in the first six months of 2012, the Investment Coordinating Board said in July. That may reach 300 trillion rupiah for the full year, exceeding a previous target of 283 trillion rupiah, M. Chatib Basri, the agency’s chair, said.
Capital spending will be allocated to outlays on power plants and to build 4,431 kilometers (2,753 miles) of roads, 15 new airports and 380 kilometers of railway, said Yudhoyono, who was re-elected in 2009 for a second five-year term.
To contain energy subsidies and make more funds available for spending that will benefit the economy, Yudhoyono proposes adjusting power tariffs automatically every quarter starting in January.