Indonesia Misses 2012 Budget Deficit Target on Spending Shortage

Indonesia missed its 2012 budget deficit target amid lower-than-expected government spending, capping the growth of Southeast Asia’s biggest economy.

The 2012 budget deficit was 1.77 percent of gross domestic product, below the target of 2.23 percent of GDP, Finance Minister Agus Martowardojo said at a briefing today. Government spending reached 1,481.7 trillion rupiah ($152 billion) compared with the 1,548.3 trillion rupiah target, he told reporters in Jakarta.

“Capital expenditure was low because of land acquisition problems,” Bambang Brodjonegoro, head of fiscal policy at the finance ministry, said at the briefing. “If capital expenditure had met its target, economic growth could have been higher.”

The shortfall underscores President Susilo Bambang Yudhoyono’s challenge to sustain one of Asia’s fastest growth rates with spending on roads, ports and bridges. Infrastructure investment has fallen to about 4 percent of gross domestic product from more than 8 percent in 1995 and 1996, Theo Thomas, senior public sector specialist at the World Bank in Indonesia, said Dec. 6.

With higher spending, economic growth last year could have reached 6.4 percent to 6.5 percent, instead of an estimated 6.3 percent, Brodjonegoro said. The economy expanded 6.2 percent in the third quarter from a year earlier, holding above 6 percent for an eighth quarter.

Indonesia’s parliament approved in December 2011 a land acquisition bill to speed up the process for infrastructure development. Yudhoyono plans to spend about 1,786 trillion rupiah through 2025 on projects such as roads, bridges and ports. The Ministry of Public Works had a budget in 2012 that was twice the 37 trillion rupiah allocation in 2010, spokesman Waskito Pandu said Dec. 4.

Government Revenue

Government revenue also fell short of the budget target, amounting to 1,335.7 trillion rupiah compared with the 1,358.2 trillion rupiah estimate, Martowardojo said.

Fuel subsidy spending rose to 211.9 trillion rupiah compared with a target of 137.4 trillion rupiah, he said. Electricity offsets jumped to 94.6 trillion rupiah, compared with a planned 65 trillion rupiah.

The government will “adjust the subsidized fuel price” if restrictions on usage don’t work well and therefore threaten Indonesia’s fiscal health, Martowardojo said. Subsidy spending rose because of an increase in the benchmark oil price, known as Indonesia Crude Price, he said.

Before it's here, it's on the Bloomberg Terminal.