2005 budget assumptions agreed

Dadan Wijaksana, Jakarta

The House of Representatives budget commission and the government have agreed on key assumptions for the draft 2005 state budget, which envisages a smaller deficit and higher economic growth.

Abdullah Zainie, chairman of the commission, said on Tuesday that the deficit for next year had been penciled in at 0.8 percent of gross domestic product (GDP), lower than this year's target of 1.2 percent.

It is also projected that the economy will grow at a zippier pace in 2005 -- up from 4.8 percent this year to 5.4 percent, Abdullah said as reported by Dow Jones.

The agreement has been reached following weeks of intense debate on the draft budget, which was submitted to the House early last month, he added.

No explanations were given for the projections, although judging by the figures, they reflect government optimism about next year's economic outlook.

The government, including Coordinating Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti and Minister of Finance Boediono, has repeatedly said that the economy should fare better next year.

This optimism is based primarily on a return of foreign direct investment (FDI), with confidence in the country expected to rise should the presidential election pass off smoothly and peacefully.

Indonesia will hold its first-ever direct presidential election on July 5, with a possible run-off on Sept. 20 for the top-two front-runners should the winner in the first round fail to secure at least 50 percent of the vote.

FDI, which used to be the main engine of economic growth before the crisis, has been depressed for a long time now. The economy has instead been relying on strong domestic consumption, which currently accounts for around 75 percent of the economy.

Another boost for the economy next year should be an improving world economy, which is expected to help boost export demand and global trade volume as a whole.

However, even if the growth projection materializes, it will still be insufficient to fully absorb the 2.5 million new workers who will enter the job market next year, let alone reduce the current open unemployment rate of 10.5 million.

Elsewhere, the draft predicts an inflation rate of 5.6 percent, lower than the 6.5 percent forecast for this year, with the foreign exchange rate set at 8,600 per dollar, unchanged from this year's target.

As for the oil price, it has been pegged at US$24 per barrel, $2 higher than this year's $22 per barrel assumption (the government may soon have to revise this assumption given rising oil prices).

For deficit financing, some Rp 7.5 trillion ($809.50 million) has been targeted from the sale of state-owned companies and assets controlled by the Asset Management Company -- a state agency formed to take over the unsold assets previously managed by the Indonesian Bank Restructuring Agency (IBRA).

In addition, Rp 50 trillion is also expected from bond issues in both the domestic and international markets, while another Rp 26.6 trillion is expected from international donors.

In 2005, the government expects to collect revenue of Rp 377.9 trillion as against incurring Rp 394.5 trillion in total expenditure.