Indonesia Spending Plan Stokes Southeast Asian Growth

Photographer: Ed Wray/Bloomberg

A fruit vendor assists a customer at a market stall in Jakarta, Indonesia. Close

A fruit vendor assists a customer at a market stall in Jakarta, Indonesia.

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Photographer: Ed Wray/Bloomberg

A fruit vendor assists a customer at a market stall in Jakarta, Indonesia.

Indonesia’s government will increase capital spending by 15 percent next year, joining Southeast Asian nations that are upgrading infrastructure to woo investment and spur jobs for growth.

Outlays will rise to 193.8 trillion rupiah ($20 billion) in 2013, President Susilo Bambang Yudhoyono said in Jakarta yesterday. The budget deficit may narrow to 1.6 percent of gross domestic product from 2.23 percent this year, as growth quickens to 6.8 percent from an estimated 6.3 percent to 6.5 percent this year, he said.

More than a decade after a financial crisis rocked Asia, the trend growth rates of Indonesia and its neighbors are rising as governments boost spending and companies invest to tap younger workforces. Southeast Asia is proving resilient to Europe’s debt crisis and China’s slowdown, with Philippine and Malaysian expansion surpassing estimates and Thai growth forecast to accelerate.

“Southeast Asian economies are in a bit of a sweet spot right now,” said Glenn Levine, a senior economist at Moody’s Analytics in Sydney. “You have stable, reform-minded governments and budgets are reasonably balanced to give them scope to implement their plans. This infrastructure upturn is real, it’s a good thing and vital to drive the next wave of growth in these economies.”

Goldman Sachs Group Inc. analysts Mark Tan and Hui Ying Chan raised GDP forecasts for Indonesia, Malaysia and the Philippines for this year and next, saying “robust domestic demand” is a buffer against slowing exports. Indonesia’s economy will grow 6 percent this year and 6.4 percent in 2013, they wrote in a report yesterday.

Thai Stimulus

Asia’s manufacturing powerhouses -- Japan, South Korea and China -- are among the fastest-aging countries in the world, while developing nations in Southeast Asia are among the youngest in the region.

Thailand’s growth probably accelerated in the second quarter as Prime Minister Yingluck Shinawatra boosted stimulus. GDP rose 3.1 percent from a year earlier, the fastest expansion since last year’s floods, according to the median estimate in a Bloomberg News survey of economists. The number is due Aug. 20.

North Asian economies have felt a greater impact from the global slowdown. Taiwan may today report that GDP shrank 0.16 percent in the second quarter from a year earlier. Sales at major South Korean department stores fell for the second straight month in July, the government said today.

European Slump

In Europe, where a slump is deepening, Germany may say producer prices rose at a slower pace in July, according to economists in a Bloomberg survey. Confidence among U.S. consumers probably dropped in August to the lowest level this year, economists predict before the release of the Thomson Reuters/University of Michigan index.

Indonesia’s Yudhoyono, who plans to give civil servants a raise next year, is increasing spending on roads, ports and airports as he woos investment to spur Southeast Asia’s largest economy. Forced to seek an International Monetary Fund bailout in the 1997/98 Asian crisis, the nation’s growth is now among the fastest in the Group of 20 and Fitch Ratings and Moody’s Investors Services have raised Indonesia to investment grade.

“We’ll raise capital spending to boost infrastructure in order to support domestic connectivity, energy and food and to support the economy,” Yudhoyono said yesterday, pledging to maintain the fiscal deficit at a “safe level” and reduce debt.

Capital spending will be allocated to outlays on power plants and to build 4,431 kilometers (2,753 miles) of roads, 15 new airports and 380 kilometers of railway, said Yudhoyono, who was re-elected in 2009 for a second five-year term.

Najib’s Measures

In Malaysia, Prime Minister Najib Razak has raised civil servant salaries and pensions, waived school fees and increased handouts for the poor under a 232.8 billion-ringgit ($74 billion) budget this year as he works to boost support ahead of a general election that must be called by early 2013. In June, his government proposed to expand the annual allocation by 13.4 billion ringgit.

Najib unveiled an Economic Transformation Program in 2010 that identified $444 billion of private-sector led projects for the current decade. The economy unexpectedly quickened last quarter, growing 5.4 percent, and the central bank said this week that 2012 growth may be at the upper end of the 4 percent- to-5 percent forecast range.

Philippine Spending

Philippine President Benigno Aquino asked lawmakers last month to approve a record 2 trillion-peso ($47 billion) budget for 2013 as he increases spending on roads, hospitals and schools. The $225 billion economy expanded 6.4 percent in the first quarter, the most since 2010.

In Indonesia, Yudhoyono’s administration wants to reduce government subsidies for fuel to put the money to more productive use. He told lawmakers yesterday that savings could be used to boost infrastructure, and called for fiscal prudence. His efforts to contain the budget deficit this year were hindered by lawmakers rejecting a proposal to increase the price of fuel.

The president forecast subsidy spending will expand 18 percent in 2013. He plans to allocate 17.2 trillion rupiah for food and 274.7 trillion rupiah for energy.

Corruption, Delays

Gains in the president’s economic development program have been undermined by corruption scandals and project delays caused by land disputes. The president signed regulations this month that set a maximum completion time of 583 days for the land acquisition process for public projects.

“When infrastructure projects run it’ll reduce unemployment, increase purchasing power and spur growth,” Fauzi Ichsan, a senior economist at Standard Chartered Plc in Jakarta, said before the budget speech. “Indonesia needs more spending to boost infrastructure but the problem is the realization of projects are too slow.”

The rupiah has fallen more than 4 percent this year against the dollar as investors pulled funds from emerging markets. Still, growth in the $847 billion economy unexpectedly accelerated to 6.37 percent last quarter as rising investment countered declining exports.

Indonesia’s foreign and domestic investment rose 28 percent to 148.1 trillion rupiah in the first six months of 2012, according to the Investment Coordinating Board.

To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Novrida Manurung at nmanurung@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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