One of the government's roles in the economy is that of a catalyst. This means that, through this role, the government drives the economic development process so that the economy can grow, develop, and progress more rapidly. This role is carried out through the government's state budget policy, known as the State Budget (APBN). One theory that explains the mechanism through which government spending policies stimulate economic activity is the pump priming theory. This theory is rarely discussed in academic discussions or economic research in Indonesia.
Pump priming refers to substantial government spending during a recession (an economic downturn) as an effort to increase people's purchasing power (private spending) and encourage the business and industrial sectors to expand their operations (Encyclopedia of American History). Jack P. Friedman, in Dictionary of Business Terms, defines pump priming as an economic policy involving increased government expenditure and/or tax reductions to boost national output. These efforts are expected to help the economy recover. To implement pump priming, governments often have to resort to running a budget deficit. A budget deficit is a government policy in which expenditure exceeds national revenue in order to provide economic stimulus. This policy is generally considered appropriate when the economy is experiencing a recession (http://organisasi.org/). A government budget deficit is the shortfall between government revenue and government expenditure within the same fiscal year.
The Indonesian government has implemented several policies to stimulate economic activity among the public. These strategies can be classified into two approaches: the trickle-down effect strategy and the allocation of government expenditure through pump priming. The trickle-down strategy was implemented by the government during the New Order era. Through this strategy, the government developed large-scale companies and industries, with the expectation that they would generate positive effects by creating employment opportunities, developing small industries as partners, suppliers, or distributors of large companies and industries, and ultimately improving the economy in a sustainable manner.
After the Indonesian economy experienced the monetary crisis in 1997, which subsequently expanded into an economic crisis, there was a growing awareness that relying solely on large companies and industries as the backbone of the Indonesian economy was too risky. Therefore, the current government appears to be attempting to implement the pump priming strategy by allocating government expenditure to increase people's purchasing power (for example, through Direct Cash Assistance programs, job creation, and labor-intensive programs) and stimulate investment activities through infrastructure development projects.
Drs. Algifari, M.Si.
