FISCAL STIMULI MUST TARGET MULTIPLE EFFECT SECTORS

By Andi Abdussalam

Jakarta, Jan 31 (ANTARA) - The Rp71.3 trillion fiscal stimuli set aside by the government to stimulate the national economy in facing the impact of the world economic crisis this year should be given to sectors which could generate multiple economic effects and produce multiple economic outputs.

        "A fiscal stimulus is really needed in the face of global economic meltdown but its economic base should be strong where allocations go to sectors whose multiple outputs are high such as sectors that enhance employment opportunities," economist Dradjad H Wibowo said.

        Whatever fiscal stimulus the government will provide for the people should be a stimulus which has the biggest benefit and has multiple effects on the country's economy.

        "For example, expenditures on the people's empowerment programs may have small effects on economic growth rather than spending on irrigation projects," Wibowo said.

        Finance Minister Sri Mulyani Indrawati told a hearing with the House of Representatives (DPR)'s Commission XI on financial affairs recently that the government was preparing a fiscal stimulus to anticipate the impact of the global economic crisis. The fiscal stimuli, set in the 2009 state budget, amounted to Rp71.3 trillion or about 1.4 percent of the national gross domestic product (GDP).

        "If the allocations of the fiscal stimuli are provided without a strong economic base, then it would have a strong nuance that they are provided in order to gain more votes in the coming general elections," Wibowo said.

        In Wibowo's view, the allocations of the government's fiscal stimulus have no strong economic base because the government has no means to measure its effectiveness.

        "That is why I questioned it whether the government has measured the effectiveness of the allocations its stimuli on the economy," Wibowo said.

        According to the finance minister, the fiscal stimuli take the form a government-borne value added tax (PPN DTP) and government-borne import duty (BM DTP).

        They will be allocated to businesses which would increase job opportunities, be active in primary sectors, provide goods needed by the people, support investment, provide basic necessaries and protect consumers.

        There are three categories of fiscal stimuli the government would provide in an effort to reinforce the resilience of the national economy.

        The first category was a direct stimulus from the state budget given to the people in the form of direct cash assistance, subsidy, fuel oil price reduction, power rate cuts and efforts to raise people's purchasing power.

        Sri Mulyani said that the second category took the form of government expenditures on projects that could enhance employment such as infrastructure development and the national program for people empowerment (PNPM) program.

        She said that the third category was a fiscal stimulus taken to reinforce the economic and people's resilience against the impact of the economic crisis.

        Included in the third category is the government's effort to increase the survivability of companies by reducing their tax burden.

        "If their income is declining while their expenditures remain high they will suffer from losses so that we will try to help them reduce their cost burden or increase their revenues," the minister said.

        If their revenues are to be increased, the demand for their products must remain high. It is impossible for the government to make demand for their goods high so that "what the government could do is to reduce their costs, including tax burden, such as reduction in the companies' income taxes.

        In the meantime, chairman of the Permanent Committee for Internal Trade Affairs of the Indonesian Chamber of Commerce and Industry (KADIN), Bambang Soesatyo called on the government and monetary authorities to help lower bank interest rates to make the government's fiscal stimuli effective in developing the real sector.

        "We call on the government and monetary authorities to coordinate efforts to lower bank interest rates and improve banking liquidity so that banks will be able to channel credits at lower interest rates," he said

        In KADIN's view, the effectiveness of the government's Rp71.3 trillion fiscal stimuli would be less significant in boosting the economy if not coupled with the lowering of bank interest rates to enable businesses to get funds easily for working capital and investment.

        The government would be in a passive position in facing the impact of the economic crisis if its approaches are limited to providing subsidy and tax incentives only. It needs to play an active role in responding to any threat and potential problems arising from the economic crisis.

        Still, the policy of introducing low-priced generic drugs, cooking oil and exemption of added value tax would not significantly increase the people's purchasing power or boost domestic consumption.

        When the people's purchasing power was low, even price subsidies would not be able to stimulate productivity at home, Soesatyo said.

        He said tax incentives and exemption from import duties would neither be effective in reviving the real sector, because many business units in various sectors were no longer viable enough to serve as a tax-resource base because they were on the verge of bankruptcy.

        "Although there is import duty exemption, capital good and raw material imports have already declined drastically. Up to the third week of January, 2009, imports reached a total value of US$3.5 billion only, a steep fall from US$9.5 billion in the same period a year earlier," he said. ***2*** (T.A014/A/HAJM/A/S012) 22:25/... ) (T.A014/A/A014/A/S012) 31-01-2009 22:23:12