Economy of Indonesia
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General government
Badan Pusat Statistik provisionally valued government administration and defence services at 103,508,800 million rupiahs in 2006 thus registering over 63% growth since 2003. [28]
Other government services were valued at 64,290,900 million rupiahs in 2006 thus registering over 67% growth since 2003.
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Private
Badan Pusat Statistik provisionally valued the social and community services at 60,319,400 million rupiahs in 2006 thus registering over 92% growth since 2003. [29]
Amusement and recreational services were valued at 10,018,800 million rupiahs in 2006 thus registering over 46% growth since 2003.
Personal and household services were valued at 100,247,900 million rupiahs in 2006 thus registering over 69% growth since 2003.
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Public expenditure
Since the Asian financial crisis in the late 1990s, which brought down the Suharto regime in its wake in May 1998, Indonesia’s public finances have undergone a major transformation. The financial crisis itself caused a huge economic contraction and a commensurate decline in public spending. Not surprisingly, debt and subsidies increased dramatically, while development spending was sharply curtailed.
Now, one decade later, Indonesia has moved out of crisis and into a situation in which the country once again has sufficient financial resources to address its development needs. This change has come about as a result of prudent macroeconomic policies, the most important of which has been very low budget deficits. Also, the way in which the government spends money has been transformed by the 2001 ‘big bang’ decentralization, which has resulted in over one-third of all government spending being transferred to sub-national governments by 2006. Equally important, in 2005, spiraling international oil prices caused Indonesia’s domestic fuel subsidies to run out of control, threatening the country’s hard won macroeconomic stability. Despite the political risks of major price hikes in fuel driving more general inflation, the government took the brave decision to slash fuel subsidies.
This decision freed up an extra US$10 billion for government spending on development programs. [30] Meanwhile, by 2006 an additional US$5 billion had become available thanks to a combination of increased revenues boosted by steady growth of the overall economy, and declining debt service payments, a hangover from the economic crisis. [31] This meant that in 2006 the government had an extra US$15 billion to spend on development programs. [32] The country has not seen “fiscal space” of such magnitude since the revenue windfall experienced during the oil boom of the mid-1970s. However, an important difference is that the 1970s oil revenue windfall was just that: a lucky and unforeseen financial boon. In contrast, the current fiscal space has been achieved as a direct result of sound and carefully thought through government policy decisions.
However, while Indonesia has made tremendous progress in freeing up financial resources for its development needs, and this situation is set to continue in the newt few years, subsidies continue to place a heavy burden on the government’s budget. The 2005 reductions on subsidies notwithstanding, total subsidies still accounted for some US$10 billion in government spending in 2006, or a significant 15 percent of the total budget. [33]
Thanks to the decision of the Habibie government (May 1998 to August 2001) to decentralize power across the country in 2001, increasingly high shares of government spending are being channeled through sub-national governments. As a result, provincial and district governments in Indonesia now spend 37 percent of total public funds, which represents a level of fiscal decentralization that is even higher than the OECD average.
Given the level of decentralization that has occurred in Indonesia and the fiscal space now available, the Indonesian government has a unique opportunity to revamp the country’s neglected public services. If carefully managed, this could allow the lagging regions of eastern Indonesian to catch up with other more affluent areas of the country in terms of social indicators. It could also enable Indonesian to focus on the next generation of reforms, namely improving quality of public services and targeted infrastructure provision. In effect, the correct allocation of public funds and the careful management of those funds once they have been allocated have become the main issues for public spending in Indonesia going forward.
For example, while education spending has now reached 17.2 percent of total public spending ─ the highest share of any sector and a share of 3.9 percent of GDP in 2006, compared with only 2.0 percent of GDP in 2001 ─ in contrast total public health spending remains below 1.0 percent of GDP. [34] Meanwhile, public infrastructure investment has still not fully recovered from its post-crisis lows and remains at only 3.4 percent of GDP. [35] One other area of concern is that the current level of expenditure on administration is excessively high. Standing at 15 percent in 2006, this suggests a significant waste of public resources. [36]
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See also
- Taxation in Indonesia
- Next Eleven
- G20 industrial nations
- G20 developing nations
- Positive market perception of Indonesian stock market(2007)
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References
- ^ BBC News. "Indonesia plans to slash fuel aid", BBC, London, 31 August 2005. (English)
- ^ Cite error: Invalid
<ref>tag; no text was provided for refs namedECONOMIST_FACTSHEET - ^ The Jakarta Post. The Jakarta Post (2007). Retrieved on 2007-11-11.
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