Tue, 01 Apr 2008
A parliamentary committee and the government agreed to raise the budget deficit target to 2.1% of GDP from 1.7% due to soaring fuel subsidies, according to a committee member, while spending on fuel subsidies may have to nearly triple to around Rp130 trillion ($14.11 billion), Finance Minister Sri Mulyani Indrawati said.

The parliamentary budget committee and the government also agreed to revise upward the average oil price assumption in the state budget to $95 a barrel from $65 a barrel in the original budget assumption to reflect real global prices, committee member Rama Pratama said on Tuesday (25/3/08), Reuters reported.

The agreements are subject to approval by a plenary session, with a vote expected to be held in coming weeks.

"The working committee has agreed to set the deficit at 2.1% or about Rp94.5 trillion ($10.29 billion). That is our agreement with the government," Pratama said.

On Monday, the finance minister said fuel subsidy spending may have to rise if the government revises its average oil price in its 2008 budget to $95 per barrel.

"If we assume an oil price at $95 dollar per barrel, with 37 million kilolitres of oil products we have to subsidize, then the (oil subsidy) figure might have to be increased to Rp130 trillion," Indrawati said.

Meanwhile a UN Economic and Social Commission for Asia and the Pacific (ESCAP) report predicts the economy will remain robust this year but inflation will pose a serious threat, The Jakarta Post reported Friday.

"In terms of inflation, there is a lot of concern due to high oil and food prices," ESCAP officer Nobuko Kajiura said.

In a survey conducted in December, ESCAP predicted the economy would grow by 6.2% this year, with the inflation rate reaching 6.4%, within range of the 6.2-6.8% target set by the government and the central bank.

The country's economy, the report said, was expected to remain strong as it would mainly be driven by private consumption and supported by higher domestic and foreign investments.

Nobuko said, however, the country's inflation rate could rise should global food and crude oil prices continue to increase.

The World Bank will also revise downward its Indonesian economic growth rate projection for 2008 to 6.0% from 6.4% due to the US economic slowdown, Asia Pulse reported.

The bank said the move will not affect the government's effort to achieve the target of reducing the poverty rate.

"That is still favorable growth. The projected growth rate of 6.0% is chiefly caused by improving macroeconomic policy, particularly fiscal policy. The drop is fairly slight as it falls to 6.0% from 6.4%," World Bank Country Director for Indonesia Joachim von Amsberg said.

Amsberg said there were three strategic steps to speed up the creation of more jobs, namely improving the investment climate, providing easy access to education and introducing an effective and efficient social security network.

"If Indonesia wants to achieve a growth rate of more than 6.0%, it must rely on the high level of investment both from the government and private sector," he said.

On the investment front, US-based paper and pulp giant International Paper said it plans to invest more than $4 billion in a pulp factory and industrial forest, the Post reported.

Director General for Forest Product Management at the Forestry Ministry Hadi S. Pasaribu said a pulp factory would have the capacity to produce 1.5 million tons of pulp per year.

It would be supported by 500,000 hectares of plantation forest in Central Kalimantan and Papua.

And PT Indocement Tunggal Prakarsa, the country’s second largest cement producer, will build a new cement plant with a an annual production capacity of 3 million tons at a cost of $300 million, company spokesman Aldo Yuliardy said.

The Indonesia Stock Exchange composite index closed the week at 2,477.59, up 154.02 points or 6.6% during the week. The rupiah was trading at 9,213/9,218 to the dollar.



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