Government’s 4.4m Infrastructure Jobs Plan Called ‘Impossible’

The Jakarta Globe, Janeman Latul, January 23, 2009

 The government is planning to allocate $10.68 billion from its budget for infrastructure projects this year to create a projected 4.4 million jobs in the sector. (Photo: Yudhi Sukma Wijaya, JG)

The government’s plan to create 4.4 million jobs under a substantial infrastructure creation program has been slammed by economists, with one saying it was “irrational” and “impossible.” 

Under the plan, the government will allocate Rp 120 trillion ($10.68 billion) from this year’s budget for infrastructure projects, an increase of 7.8 percent from last year’s budget spending. Private and state-owned businesses are also expected to spend another Rp 47 trillion to boost infrastructure spending. 

“The total value for capital investment in infrastructure projects this year was set at Rp 167 trillion,” said Sumaryanto Widayatin, a special adviser to the Ministry of Public Works, who is also in charge of human resources development and training. “The central government will provide Rp 61 trillion, while district governments are expected to provide Rp 59 trillion.” 

Sumaryanto said that the government was also expecting about Rp 47 trillion in projects from state-owned and private construction companies. “This will create about 4 million to 4.4 million jobs this year,” he said. 

However, Purbaya Budi Sadewa, a senior economist from the Danareksa Research Institute, said that the job figure was too high and would likely need the economy to grow more than 10 percent this year, which was highly unlikely under current market conditions. 

“The 4.4 million job figure is too high even for overall job creation [in the economy], I think they made the wrong projection,” Purbaya said. “They could have made this projection to create high expectations in order to make people feel more optimistic, but they need to be very precise, otherwise their figures will only be questioned.” 

Purbaya added that the normal figure for job creation in Indonesia was around 350,000 new jobs for every 1 percent increase in the gross domestic product. “This means that the economy would have to grow by more than 10 percent [from a 5.5 target] this year [to get to the 4 million figure]. This is irrational and impossible,” Purbaya said. 

Eric Sugandhi, an economist from Standard Chartered Bank Plc., said that if the government was serious about realizing its job creation figure, it had to make sure that the unspent money from last year’s budget was disbursed soon. “They have to make sure the old projects are realized, while the new projects will also need to be accelerated as soon as possible,” Eric said. 

This would mean streamlining burdensome bureaucracy at the local government level, which often puts the breaks on important investment, he said. 

“[What happened] to the money left over from the budget last year must not happen again [this year]. If not, it may pull our economy down,” he added. 

The government had Rp 51 trillion in leftover funds last year. Most provincial and district governments held on to much of the money because they were afraid of spending it and consequently being accused of corruption. 

The government is under pressure to fight the global recession, which has caused Indonesian businesses to lay off employees. The government forecasts its 2009 GDP to be between 4.5 percent and 5 percent, down from 6 percent earlier. Most private economists predict even slower growth next year, with optimists forecasting a GDP expansion of between 4 percent and 4.5 percent. 

Finance Minister Sri Mulyani, however, said that healthy economic growth would only occur if the crisis did not negatively impact small and medium businesses, and there were no massive layoffs.