Mon, 18 Aug 2008
Aditya Suharmoko, The Jakarta Post, Jakarta

The government has set an expansive state budget for next year, calling for a higher deficit with increased spending to boost growth and reduce unemployment.

President Susilo Bambang Yudhoyono on Friday presented the 2009 state budget draft to the House of Representatives, saying the "growth with equity" strategy would accelerate Indonesia's economy and cut unemployment and poverty.

"For the first time since Indonesia's independence, state revenue and expenditure can reach above Rp 1,000 trillion," Yudhoyono said.

State revenue has been set at Rp 1,022.6 trillion and expenditure at Rp 1,122.2 trillion, higher than the Rp 894.99 trillion and Rp 989.49 trillion figures of the 2008 budget.

With that, Yudhoyono said, the budget deficit of Rp 99.6 trillion was predicted to be 1.9 percent of GDP. This year's predicted budget deficit is Rp 94.5 trillion.

The higher deficit provides the government with more room to spend on productive purposes.

Up to Rp 77.7 trillion is allocated to support acceleration in economic growth. With this, the government plans to spend Rp 37.2 trillion to help finance growth-generating projects and Rp 39.5 trillion for infrastructure development.

The economy is expected to grow by 6.2 percent next year, despite a global economic outlook "filled with challenges", Yudhoyono said.

Coupled with all other efforts -- increasing civil servant salaries and various poverty eradication programs, for example -- the growth is targeted to reduce poverty to between 12 and 14 percent of Indonesia's 220 million population.

According to the Central Statistics Agency (BPS), as of March the poverty rate stood at 15.4 percent.

In the first half of 2008, the economy grew by 6.4 percent, with an on-year inflation rate of 11.03 percent.

Commenting on the deficit, acting Coordinating Minister for the Economy Sri Mulyani Indrawati told a press briefing late Friday that "the deficit is in accordance with the government's work plan".

To plug the deficit, the Finance Ministry will issue government bonds, including yen-denominated bonds for the first time in history.

"We have discussed with Japan's finance minister the plan to issue yen-denominated bonds. We will consider the risk (first)," Sri Mulyani said.

MS Hidayat, chairman of the Indonesian Chamber of Commerce and Industry, said the growth target could have been higher if the government doubled its spending for infrastructure projects.

"I was a bit upset that the budget for infrastructure is still low at about 3 percent of total spending. In a country like ours, normally the spending for infrastructure is 6 percent.

"Investment and economic growth would be bigger if infrastructure development was higher. As a consequence, the government must add investment volume in infrastructure development," Hidayat said.

Basic assumptions for the 2008 and 2009 state budgets:
------------------------------------------------------------

2009 2008
------------------------------------------------------------ Economic growth 6.2% 6.2-6.4%
Inflation rate 6.5% 6.5%
BI rate 8.5% 7.5%
USD exchange rate Rp 9,100 Rp 9,100
ICP barrel price $100 $95
Oil production 950,000 bpd 927,000 bpd
------------------------------------------------------------ Source: Finance Ministry



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