2020 capital expenditure to focus on human resources and supporting infrastructures

This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Investor Daily - Belanja Modal 2020 harus Fokus SDM dan Infrastruktur Pendukung

27 May 2019

By: Triyan Pangastuti and Arnoldus Kristianus

Jakarta — Capital expenditure budget in the 2020 State Budget (APBN) that is planned to be more than Rp200 trillion, increased from this year which is at around Rp189.3 trillion, and it is said to be sufficient. What is more important, besides the development of human resources to boost Indonesia’s competitiveness at international level, the allocation of the expenditure capital should also focus on the construction of supporting infrastructures such as irrigation systems and roads connecting main infrastructures and villages in Indonesia.

Capital expenditure utilisation strategy to provide supporting infrastructures integrated with programs for human resources development is said to have a more significant multiplier effect on the national economy. Because the construction of these labour-intensive projects will have immediately salient impacts such as the absorption of many workforce. As a result, this can increase people’s income and money rollover.

Those were the main perspective of a number of resource persons regarding capital expenditure utilisation strategy for 2020 to push the economy, which was conveyed on several occasions last week. Those resource persons were the Minister of Finance Sri Mulyani Indrawati, Dean of Economy and Business Faculty of the University of Indonesia (UI) Ari Kuncoro, Director General of Indonesian Chamber of Commerce and Industry Rosan Roeslani, Executive Director of Indonesian Centre of Reform (Core) Mohammad Faisal, and Economist of Institute for Development and Economics and Finance (Indef) Bhima Yudhistira.

The government plans to increase the allocation of capital expenditure in the 2020 State Budget Draft (RAPBN) to more than Rp200 trillion from Rp189.3 trillion this year. The draft development will accelerated for the development of human resources. Meanwhile overall, the state expenditure will be increased from 14.4% to 15.4% of the gross domestic product (GDP).

Based on data from the Ministry of Finance until last April, the allocation of capital expenditure in the 2019 APBN which was recorded at Rp189,34 trillion had only been absorbed as much as Rp15.86 trillion or 8.4% of the set ceiling or only grew by 15.21%. The figure is still considered low compared to the realisation in the same period last year of Rp18.7 trillion.

Sri Mulyani stated her agency had been trying to optimise sources for national economic growth. One of them was expenditure, especially capital expenditure. This was done with an aim that the expenditure could become a catalyst in the momentum of construction and competitiveness of Indonesia’s economy. “We will keep developing a more creative funding. Through fiscal instruments in the revenue both expenditure and funding,” she stated.

One of the focuses in the 2020 fiscal policy, said Sri Mulyani, was to increase the competitiveness innovation. This was done to drive balanced construction between consumptions, investments, and exports. Here, the government would play a role as a catalyst, not as the main agent. Hence, Non-Tax State Revenue (PNBP) would also be used to increase investments and exports.

Sri Mulyani explained APBN’s policy was directed towards allocation, distribution, and stabilisation functions. A measured APBN means that the APBN deficit is maintained at the appropriate level to preserve its sustainability. Fiscal policy is directed to stimulate the economy to grow to a fairly high level. APBN is pushed to be healthier, marked by a more optimum level of income, quality expenditure, and also efficient and sustainable funding.

She said the strengthening of budget allocation in the 2020 RAPBN would be utilised for the implementation of priority programs in accordance with the 2020 APBN fiscal policy theme, which was the Competitiveness Acceleration through Innovation and Human Resources Quality Strengthening.

“There are plenty of focuses on human resources because of accommodation of various priority programs in human resources. Whether this is for human resources education in terms of health and in terms of comprehensive social security network. Factoring in factors from early to late age,” said Sri Mulyani.

Priority programs in the 2020 APBN are human resources development, social protection, infrastructure development, fiscal decentralisation quality improvement, and institutional reformation for accelerated competitiveness as well as external balance improvement.

“The government pushes for higher quality expenditure. This is achieved by massive saving of goods purchases, capital expenditure strengthening, employee expenditure reform, effectiveness improvements including accurate social assistance and subsidy expenditures, and also the strengthening of expenditure transfer to hinterlands and village funds,” said Sri Mulyani.

She said, the development of Indonesian people was carried out by improving health and education quality so they would have high productivity and adaptability to industry 4.0. “The quality of Indonesian workforce has to be upgraded from mostly having only basic education and lack of expertise to becoming well-educated and skilled workforce,” said Sri Mulyani.

The fulfilment of the comprehensive social protection programs continues to be developed to show that the country is present to protect the weak. At the same time, the continuation of infrastructure construction to improve the flow of people and goods connectivity along with the strengthening of digital network.

“The improving infrastructure condition is a precondition for the acceleration of economic transformation that supports the improvement of exports and job creation,” Sri Mulyani stated.

 

Multiplier Effect

Ari Kuncoro said every allocation of capital expenditure had to take into account the multiplier effect it generated. According to him, once the main infrastructure has finished building, the next construction focus is on roads which connect districts to villages.

“From that we can see, capital expenditure is used more for villages or to reach more people. Not the amount of budget allocation but the multiplier effect of the expenditure. For example it’s used for building irrigation, village roads, and districts,” said Ari Kuncoro when he was contacted by Investor Daily, Saturday (25/5).

According to Ari, the allocation of capital expenditure of more than Rp200 trillion is already sufficient, because the government focus has shifted from infrastructure to human resources. The driving force of domestic economy originated mostly from expenditure for human resources integrated with infrastructure construction, such as hospitals and vocational facilities.

“There is also physical development. But it is better to be integrated. In terms of driving force for the economy, it is sufficient, because if the expenditure is too much then it will create inflation,” said Ari.

With the funding allocation not as much as that for building a toll road, through a number of labour-intensive programs that reach out to the village folks, capital expenditure can absorb many workforce.

“When building toll roads, the economic impacts can only be felt once they are done. However, by construction of labour-intensive projects, the effect can be felt immediately. For it raises people’s income and improve money rollover,” he explained.

Meanwhile, Rosan said after infrastructure development had been completed, the human resources quality had to be improved so that it could produce quality economy.

“Hence the human resources improvement program is the key to sustainable and continuous construction,” said Rosan in Jakarta, last weekend.

 

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