Timing FISCAL STIMULUS EVALUATION

62 E D I S I 0 2 T A H U N X V I I 2 0 1 1 IDR 721.5 billion for two program, i.e. revitalization and rehabilitation of primary warehouse in the food production centers and national programs of community empowerment Program Nasional Pemberdayaan Masyarakat or PNPM. Table 3.1: Fiscal Stimulus Package Source: 2009 Fiscal Stimulus Document, Ministry of Finance

IV. FISCAL STIMULUS EVALUATION

In order to evaluate Indonesia 2009 Fiscal Stimulus, four criteria are used: timing, target, implementation, and multiplier effect.

4.1. Timing

Some literatures and previous researches state that timing is the most important factor for fiscal stimulus policy to be effective as a countercyclical policy during the economic crisis. Fiscal stimulus should be given at the peak of the economic crisis, not after the economy has started its recovery process. During the peak of the economic crisis, the economy is under its full capacity and need stimulus to boost its growth. Often, the only source for stimulus is the government, acts as a trigger for the economic recovery. However, the case is different when the economy has started its recovery process. When the recovery process began, the economic activity has started improving. By adding additional stimulus, it will add unnecessary aggregate demand to the economy. The result could be an overheating economy Figure 4.1 shows Indonesia quarterly economic growth during the global financial crisis. Indonesia economic growth decrease from 6.3 per cent at the 3 rd quarter 2008 to 5.3 per cent at the 4 th quarter 2008, 4.5 per cent at the 1 st quarter 2009, and hit its low at 2 nd quarter 2009, 4.1 per cent. Since the 3 rd quarter of 2008 to the 2 nd quarter of 2009, Indonesia economic growth shrunk 2.2 per cent. Looking at the figure, it can be assumed that the crisis was peak at the end of 2008 up to the 2nd quarter of 2009. The economic growth has started recovering in the 3 rd quarter of 2009, since there was a slight improvement of economic growth, from 4.1 per cent to 4.2 per cent. Looking at the period of the crisis, the ideal time for the implementation of fiscal stimulus should be during 3 rd quarter of 2008 to 2 nd quarter of 2009. Figure 4.1: Indonesia Quarterly Economic Growth 6,7 6,7 6,7 5,7 4,9 4,5 4,5 5,9 5,4 4,2 4,1 4,5 5,3 6,3 6,3 6,2 Peak of the GFC Ec onom y star ted rec ov ering 3,5 0,1-0,8 GDP Growth GDP less Oil and Gas 0,2-0,8 0,3-0,8 0,4-0,8 0,1-0,9 0,2-0,9 0,3-0,9 0,4-0,9 4,0 4,5 5,0 5,5 6,0 6,5 7,0 Source: Central Bureau of Statisics Indonesia fiscal stimulus package was agreed and signed by the legislative at the end of February of 2009. It was a little bit late but still in range. Nevertheless, although the document has been signed at the end of February, there was a significant lag between the moment the document was signed and actually being implemented. A clear prove can be seen in the implementation of infrastructure stimulus. Figure 4.2 shows up till the 3 rd quarter of 2009, the infrastructure projects practically have not been started. The infrastructure projects progress at the end of 3 rd quarter of 2009 was only 25 per cent and just started to significantly increase in the 4 th quarter of 2009. Most of the infrastructure projects almost 40 per cent were done in the last month of 2009. Figure 4.2: Infrastructure Fiscal Stimulus Monthly Progress 0,00 0,06 Jun-09 Physical Progress Budget Absorption 10 20 30 40 50 60 70 80 90 100 Jul-09 Agust-09 Sep-09 Okt-09 Nop-09 Des-09 4,51 4,83 13,93 14,72 27,79 24,95 42,1 47,45 62,85 94,73 93,61 57,45 Source: National Development Planning Agency, 2010 There is no information of monthly progress for other fiscal stimulus instrument. However the performance of infrastructure stimulus, can give a picture concerning timing problem in the implementation of Indonesia fiscal stimulus. Comparing figure 4.1 and 4.2, since the economy started its 63 E D I S I 0 2 T A H U N X V I I 2 0 1 1 recovery at the 3 rd quarter of 2009 when the fiscal stimulus had not been fully implemented, we can speculate that the economy started its recovery without much help from the fiscal stimulus. Worse, most of the stimulus poured into the economy at the 4 th quarter of 2009 could give unnecessary additional demand to the economy which had started improving.

4.2. Target