World Bank advises Indonesia to increase education spending

Indonesia could achieve growth of 7 per cent or more if it reduced fuel subsidies and spent more on education, social safety nets and infrastructure, a World Bank report said Wednesday, days after government efforts to raise fuel prices were blocked. "The future of Indonesia's growth and development in dependent on the government's continued progress in improving the quality of its spending," said the World Bank's top economist in Indonesia, Subham Chaudhuri. "Effective spending on infrastructure and education along with measures to improve the business climate could potentially boost Indonesia's growth rate up to 7 per cent or more," he said upon the release of the development bank's quarterly report on Indonesia. Indonesia's parliament on Saturday blocked government plans to raise subsidized fuel prices by 33 per cent on April 1 after street protests, some violent, broke out across the country. In a compromise, the House of Representatives allowed the government to increase fuel prices by 1,500 rupiah (160 cents) per litre to 6,000 rupiah on the condition that the Indonesian Crude Price, a basket of crude oil prices, rises by at least 15 per cent above the 2012 state budget assumption of 105 dollars per barrel. The World Bank said Indonesia spent nearly 19 billion dollars on fuel subsidies in 2011, or 2.2 per cent of its gross domestic product (GDP), but 40 per cent of the direct benefits went to the richest 10 per cent of households. In contrast, 0.5 per cent of GDP was spent on social programmes, the bank said. Although the poverty rate dropped to 12.5 per cent in 2011 from 23.4 per cent in 1999, 25 per cent of Indonesia's 237 million people live below the official "near-poor" line and are vulnerable to even the smallest shocks, the report said.