Mustaqim Adamrah, The Jakarta Post, Jakarta
The Indonesian Chamber of Commerce and Industry (Kadin) has asked the government to add Rp 10 trillion (US$950 million) to the funds set aside for next year to help cushion the real sector from the impact of the global economic slowdown.
In the 2009 state budget, the government has allocated Rp 10 trillion (US$950 million) worth of waived income and value-added taxes and Rp 2.5 trillion worth of waived import duties and taxes to help generate growth in the private sector.
The waived payments would then be covered by the Finance Ministry so as not to reduce the government's tax revenue target.
But Kadin chairman M.S. Hidayat said an additional Rp 10 trillion was needed for the real sector to really withstand the global economic storm, whose impact is already being felt.
He said the extra money was necessary with "manufacturers already having plans to cut their production levels next year by on average 20 percent, forced by the sluggish global demand".
"Usually, we start receiving orders for the next year in October," he told reporters on the sidelines of a Kadin national meeting on international economic cooperation.
But, he added, "only a few of next year's orders" had been placed, and buyers were requesting lower prices.
The government decided to provide the incentives for the real sector mainly to help reduce costs for businesses and small and medium enterprises, head of the ministry's fiscal policy agency Anggito Abimanyu said earlier.
He said the incentives would be enjoyed by companies in the food, energy and selected sectors but did not elaborate on which sectors would be eligible.
A downturn in the real sector could trigger mass unemployment, and consequently lower consumer spending, on which the Indonesian economy relies heavily.
Consumer spending makes up about 65 to 70 percent of the national GDP.
Voicing a similar view, co-chairman of United States-based investment advisory firm Ancora Capital Management (Asia) Ltd., Gita Wirjawan, said all elements of the country should focus on efforts to ignite the real sector.
He said Indonesia could not count only on the interest rate as an instrument to recover the economy because "that's not enough".
"We need to back the real sector. We need to build more infrastructure, more factories and more plantations, and thus create more jobs," Gita said.
The government is targeting economic growth of 6 percent in 2009. It expects the poverty rate to drop to between 12 and 14 percent and unemployment to between 7 and 8 percent.
Hidayat previously said the fund should be spent to support export-oriented small and medium enterprises that have the potential to grow despite the global crisis and labor-intensive industries, such as the textile and footwear industries.
Among these enterprises are those producing handicrafts, batik, rattan and songket (gold or silver-woven fabrics), he said.