The Best of the Bureau/The_Best_of_the_Bureau_Bureau_Development_Inc._1992.iso/dp/0021/00214.txt

Text File | 1992-08-07 | 39KB | 617 lines

$Unique_ID{bob00214}
$Pretitle{}
$Title{Indonesia
Chapter 3B.   Role of Government}
$Subtitle{}
$Author{Riga Adiwoso-Suprapto}
$Affiliation{HQ, Department of the Army}
$Subject{government
percent
repelita
development
system
bank
agricultural
credit
land
rice
see
pictures
see
figures
}
$Date{1982}
$Log{}
Title:       Indonesia
Book:        Indonesia, A Country Study
Author:      Riga Adiwoso-Suprapto
Affiliation: HQ, Department of the Army
Date:        1982

Chapter 3B.   Role of Government

     Since the establishment of the New Order government of Soeharto a
relatively stable and rational macroeconomic management system has taken root.
Largely the creation of Widjojo Nitisastro, minister-coordinator for economy,
finance, and industry and head of the National Development Planning Council
(Bappenas), the system reflected the technocrat's preferences for analysis,
planning, and step-by-step development of the economy. As some observers have
witnessed, however, this policymaking apparatus has displayed irregularities.
Prominent bureaucratic capitalists have been able to circumvent ordinary
channels by going directly to the president. This can lend the system great
flexibility but can also increase its susceptibility to unplanned and costly
failure.

     On the surface, Bappenas is the source of the government's economic
wisdom, but the real power to select economic policy is in the hands of the
president. The president has been subject to influences not only from Bappenas
but also from differing interests represented in the various departments,
state enterprises, and the military establishment (see The Power Structure,
ch. 4). Since his appointment to cabinet rank in 1971, however, Widjojo has
had especially easy access to the president. He and other prominent
technocrats-especially the group of United States-trained economists,
including Minister of Finance Ali Wardhana, Minister of Mines and Energy
Soebroto, Minister of State for Administrative Reforms Sumarlin, and Minister
of State for Supervision of Development and the Environment Emil Salim-were
the most influential voices in matters of macroeconomic policy. The
technocrat's contribution to national decisionmaking was especially important
in the drafting of economic plans and the state budget.

     Although by no means a planned economy like those of Eastern Europe
and the Soviet Union, Indonesia's economy received direction and impetus
from a series of five-year economic development plans mapped out by Bappenas
and projected into the 1990s. According to the long-range planning scheme,
the first of these, Repelita I (FY 1969-73), was to emphasize the development
of basic agriculture; Repelita II (FY 1974-78), balanced agricultural
production; Repelita III (FY 1979-83), industries supporting agriculture;
Repelita IV (FY 1984-88), basic industry; Repelita V (FY 1989-93), defense
and security industries; and Repelita VI (FY 1994-98), balanced and
self-sustaining production in all sectors. As each plan was implemented,
detailed targets for investment and production growth were agreed upon by
all the government agencies concerned. Each year the government prepared a
progress report charting the achievements and problems experienced in the
implementation of the plan.

     Repelita figures were meant to be targets and signals of government
policy rather than strict prescriptions. Moreover, the government has
admitted that the statistical base for calculating relevant economic data
has been weak. In the mid-1970s the Central Bureau of Statistics completely
revised the national income accounting system based on an improved set of
input-output tables for the economy. Periodic improvements in this
statistical matrix have greatly facilitated macroeconomic planning and
policymaking. At the same time, there were still large gaps in the
available economic data, particularly relating to the agricultural sector. To
strengthen the basis for national planning and to promote regional
development, which became a special concern under Repelita III, a Regional
Development Planning Board (Bappeda) was established by Bappenas in each of
10 locales in 1974. Despite staffing problems, they were able to help
provincial and local governments select appropriate development projects.

Fiscal Policy

     The best indicator of actual government economic policy is the central
state budget. Total expenditures have grown from less than 16 percent of GDP
on average under Repelita I to more than 26 percent of GDP under Repelita III
(see table 5, Appendix). Since the start of Repelita II, about half of all
expenditures have passed through the development budget, which comprises
capital spending on specific projects or loans earmarked for capital projects
developed by local agencies. Routine expenditures make up the other part
of government spending, mostly for expenses incurred in the administration
of government services.

     The share of routine expenditures in the overall budget has tended to
diminish, and in the planned budget for FY 1982 such expenditures were
expected to be less than 45 percent of government spending for the first time.
In the past, personnel and materiel costs have made up the bulk of routine
spending, but under Repelita III the costs of servicing the government's
external debt and of subsidizing purchases of foodstuffs and petroleum
products for domestic consumers increased substantially. In FY 1980 the oil
subsidy alone amounted to over 17 percent of all routine expenditures.

     Development spending, by contrast, has taken an increasingly large share
of the national budget. Under Repelita I and Repelita II government investment
went toward developing a basic infrastructure of transportation,
communications, and power generation and toward strengthening agricultural
production by the expansion of irrigation projects and the provision of
fertilizer. Under Repelita III the emphasis shifted somewhat to investment
in industry and for education, health, housing, and water facilities.
Expenditures on development services provided by the central government have
also increased, while spending channeled through local governments in the form
of Inpres subsidies has decreased as a share in the total. Although only a
small part of the budget has been devoted to manpower and transmigration
(see Glossary), expenditures in these areas were rising rapidly (see table
6, Appendix).

     The government remained concerned about regional development, and
transfers from the national treasury accounted for more than 80 percent of
the revenue of the provincial and local governments, which had limited
taxing authority. The central government was extremely sensitive to
redressing past imbalances between Java and the Outer Islands (see Glossary).
Since FY 1974, for example, the per capita budgetary expenditure devoted to
direct Inpres grants, the presidential grants for public works construction,
has consistently favored Kalimantan, Irian Jaya, the Malukus, and the less
developed provinces on Sumatra and Sulawesi. In FY 1981 the per capita Inpres
expenditure for the new province of East Timor was two and one-half times the
national average and nearly seven times that for Java. At the same time,
however, bank credit has gone disproportionately to areas having a
developed industrial infrastructure or large resources. The per capita
outstanding bank credit to Jakarta alone at the end of 1980 was more than
seven times that for either East Kalimantan, South Kalimantan, or South
Sulawesi, respectively, the provinces receiving the next largest amounts of
bank loans.

     On the revenue side of the national budget, increased receipts from taxes
on the profits of oil corporations have enabled the government to finance more
and more of its development budget through government savings. During Repelita
I the excess of domestic revenues over routine expenditures financed about 45
percent of development spending. This proportion rose to 64 percent in
Repelita II after the oil pric