TMCnet News
Indonesia - Moving strong ten years after the crisis(Thai Press Reports Via Thomson Dialog NewsEdge) Section: Regional News - Indonesia has the largest increase in development spending in three decades,according to a recent report. If spent wisely, the country could move from strength to strength. Indonesia has had the largest increase in fiscal resources for development since the 1973 oil revenue windfall, says the report. Spending for Development: Making the Most of Indonesia's New Opportunities released today. The report is a joint study prepared by the Government of Indonesia and the World Bank, supported by a grant from the Netherlands Government. The result of a sharp reduction in fuel subsidies in 2005, declining debt service payments and increasing revenues, this increase provides an additional US$15 billion (of a total national budget US$ 70 billion) for critical development needs. A decade of successful macroeconomic management by successive governments contributed to this success. The findings are part of a public expenditure review for Indonesia. For the first time spending and economic data have been compiled from all levels of government: the center, provinces and local governments. The report examines and explains some of the constraints facing the government in public resource management and allocation, and offers recommendations for improvements in six critical areas: fiscal space, education, health, infrastructure, public financial management and decentralization. Ten years ago when East Asia started to unfold, Indonesia was hardest hit by the Asian economic crisis. Now, the region has recovered, Indonesia is now less vulnerable, and stronger than before. Indonesia finds itself in a situation of fiscal strength, said Jim Adams, the World Bank's Vice President for East Asia and Pacific, who launched the report. I've visited Indonesia twice since I started this job. I got a strong sense that the country is moving in the right direction, with challenges in governance and improving public services stillparamount. The country is now in a position to use this fiscal strength to address those challenges more effectively. The joint report also noted that this success comes with a caveat: more money could only be good news if it is spent more wisely. Indonesia needs to invest more in the quality of its public services --health and education-- and better infrastructure. The government realizes that these three key sectors need particular attention. The report acknowledges Indonesia's efforts to expand basic services in the last two decades particularly in education, but it urges the nation to make full use of significantly increased resources for development. The challenge now is to move to the next generation of reforms in public services and infrastructure, so Indonesia can achieve the kind of growth rates that are powering an Asian renaissance in many neighboring countries today, says Wolfgang Fengler, Senior Economist World Bank and lead author of the report. The report says secondary and tertiary education, an upgraded health system and better infrastructure services will be critical to keeping Indonesia's economy competitive in the long run. In analyzing expenditures across sectors since 2001, the report finds the size and ranking of expenditures in key sectors has changed substantially. The main winners are education (now number 1 with more than 17 percent of the total budget) followed by Government apparatus (15 percent). Interest payment on debt has experienced the sharpest decline from number 1 in 2001 (25 percent) to number 5 (11 percent) in 2006. Infrastructure is the other major loser and has only recovered very modestly to 11 percent from its post-crisis downturn, and is now only representing the sixth largest spending item in Indonesia. How Indonesia implements its budget will be key to delivering some quick results in the short medium while laying a sound foundation for medium and long term growth. The government has come a long way in on establishing a sound framework for budgeting and have been operating with a unified budget since 2005, including in measuring the government's performance against results on the ground. The other significant finding of the report is the extent to which Decentralization has changed the fiscal fundamentals of Indonesia. In 2006, Indonesia experienced a second big bang when transfers to regional governments increased by another US$ 8 billion to a record US$ 25 billion. This is projected to rise further to US$ 28 billion in 2007. Provinces and districts are now managing almost 40 percent of Indonesia's public expenditures and half of public investment, said Wolfgang Fengler. The challenge for regional governments now is how to spend such large resources effectively. Indonesia has now once again a chance to put substantial resources to work for poverty reduction; it's a unique opportunity which it cannot miss. - World Bank Copyright 2007 Thai News Service, Source: The Financial Times Limited |