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Finance

Indonesian parliament deals blow to Widodo's development plan

JAKARTA -- Indonesia's legislature has turned down a government proposal to inject 5.6 trillion rupiah ($436.8 million) worth of capital into Bank Mandiri, the nation's biggest state lender. The administration of President Joko Widodo plans to spur infrastructure development by pouring fresh capital into state-owned enterprises, but the setback suggests progress might be slower than the government would like. 

     The Indonesian ministry in charge of state-owned enterprises had planned to inject a total of 48 trillion rupiah into 35 companies. In nixing the funds for the bank and reducing other injections, the House of Representatives lowered the total outlay by 16%, to 39.92 trillion rupiah.

     A planned 7 trillion rupiah injection for coal miner Aneka Tambang has been halved to 3.5 trillion rupiah. Perum Perumnas, a housing company, stands to get only 1 trillion rupiah, as opposed to the intended 2 trillion rupiah.

     On the other hand, electricity producer Perusahaan Listrik Negara, which was not on the government's initial list, has been granted a 5 trillion rupiah capital injection to facilitate a 35,000-megawatt power plant project.

     The ministry formulated the original 48 trillion rupiah package to support five priority programs, including infrastructure, health care and education. Widodo on Thursday said the government will look at other policies, such as cutting dividend payout ratios, setting new incentives and securing adequate loans for the projects.

     Indonesia's central bank is targeting loan growth of up to 17% at national banks this year, but the capital package was factored in. It is unclear whether the decision to scrap Bank Mandiri's injection will affect lending.

     Rodrigo Chaves, the World Bank's country director for Indonesia, on Wednesday said the new administration has set very ambitious infrastructure goals. To reach them, he said, the country needs to improve the business environment to attract private investment on top of spending by the government and state enterprises.

     Widodo, who leads a minority government, also faces some challenging political calculations. Depending on the president's momentum, the opposition Merah Putih coalition led by Prabowo Subianto, the son-in-law of former dictator Suharto, might be able to exert more control over the legislature in the future.

     Achmad Hafisz, a key parliamentary figure and a member of the National Mandate Party, which is part of Merah Putih, said that although the coalition opposes the government, it supports the acceleration of infrastructure projects and other programs to develop the nation.  

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