Govt unveils final stimulus plan to boost economy

Aditya Suharmoko, , THE JAKARTA POST , JAKARTA | Wed, 01/28/2009 8:45 AM | Headlines
After giving conflicting figures, the government has finally set the stimulus at Rp 71.3 trillion (US$6.31 billion) to boost the economy amid the threat of crisis.
The package will include the Rp 27.5 trillion stimulus previously announced, and is higher than the figure of Rp 50 trillion touted by President Susilo Bambang Yudhoyono.
The new stimulus revolves around tax savings worth Rp 43 trillion, waived taxes and import duties for businesses and certain households, worth Rp 13.3 trillion, as well as subsidies and govern-ment spending of Rp 15 trillion for businesses.

Speaking before the House of Representatives' Commission XI, which oversees financial affairs, Finance Minister Sri Mulyani Indrawati said the stimulus was aimed at increasing people's purchasing power, the competitiveness and sturdiness of businesses facing the economic downturn, and labor-intensive infrastructure spending.
Mulyani said the stimulus "is everything that cuts costs borne by businesses and the people", when asked why the stimulus was not fully designed to support businesses.
The incentives include paying the income taxes of employees — now paid by businesses — of up to Rp 6.5 trillion, subsidizing diesel by Rp 2.8 trillion, and increasing infrastructure spending by Rp 10.2 trillion.
According to the ministry, Indonesia's Rp 71.3 trillion stimulus package accounts for 1.4 percent of the country's GDP, higher than the recently announced US stimulus, percentage-wise, which only accounts for 1.2 percent of the GDP.
The government forecasts the economy to grow between 4.5 and 5.5 percent this year, a drop from an estimated 6.2 percent in 2008.
The global downturn is affecting Indonesia’s economy on all fronts, from weakening demand for exports and slowing down flows of investment, to reducing consumer purchasing power.
Businesses have long warned that massive layoffs could hit Indonesia when the impact of the global crisis hits home the hardest some time in the middle of this year.
To achieve 5 percent economic growth, the government will boost spending by 10.4 percent from a year earlier, as private consumption, the economy's main driver, looks likely to drop this year.
Fauzi Ichsan, an economist with Standard Chartered Bank, said that in the past four years, government spending was relatively low.
"The stimulus will boost growth only if the government and local administrations can spend the money effectively," he said.
Government Rp 71.3 trillion
Economic Stimulus Package

Tax savings
• Income taxes of individuals and corporates, as well as untaxed incomes: Rp 43 trillion
Waived taxes and import duties
for businesses and certain households
• Value-added taxes on oil and gas exploration, and cooking oil: Rp 3.5 trillion
• Import duties on raw materials and capital goods: Rp 2.5 trillion
• Income taxes of employees: Rp 6.5 trillion
• Income taxes for geothermal: Rp 0.8 trillion

Subsidies and government
spending for businesses
• Diesel subsidy: Rp 2.8 trillion
• Electricity rate discount for industries:
Rp 1.4 trillion
• Additional infrastructure spending: Rp 10.2 trillion
• Expansion of development for people living in rural areas (PNPM): Rp 0.6 trillion

Source: Finance Ministry