Budget projects higher growth

Budget projects higher growth

Urip Hudiono, The Jakarta Post, Jakarta

The government is upbeat about the economy for the 2006 state
budget, projecting higher growth and a lower deficit in its
budget draft, despite this year's budget blowout following
continually high international oil prices.

Unveiled on Tuesday by President Susilo Yudhoyono in his
annual state of the nation address to the House of
Representatives, the draft predicts the economy will expand by
6.2 percent in 2006 -- the highest growth since the crisis and
slightly higher than this year's expected growth of 6.0 percent.

It also projects a decline in the deficit to 0.7 percent of
GDP, after it bulges to an estimated 1 percent for this year.

The targets are based on similarly optimistic assumptions --
that oil prices will average US$40 a barrel next year, that the
rupiah exchange rate will settle at Rp 9,400 per U.S. dollar and
that inflation will ease down to 7 percent.

Oil prices are presently still above $60 a barrel, the rupiah
has recently hit its latest low of Rp 9,900, while July's
headline inflation reached 7.84 percent -- all missing their
assumed marks in this year's budget.

With high oil prices, coupled with a recent weaker footing of
the rupiah pushing up inflation and key interest rates -- all of
which dampened consumer spending -- economic growth has declined
over recent months.

The Central Statistics Agency (BPS) said recently the economy
had grown in the second quarter of the year by only 5.54 percent
-- marking a continued economic deceleration for the second
straight quarter, having grown by 6.19 percent in this year's
first quarter and 6.67 percent in the final quarter of last year.

Despite the decline, Susilo said he was confident that the 6.2
percent GDP growth target would be attainable, betting in part on
the expected revival of the global economy next year.

"This will boost our exports, while our consumption demand and
investment momentum are also expected to remain strong," he said.

Investment Coordinating Board (BKPM) data shows foreign direct
investment has amounted to $4.9 billion in the period ending
July, nearly double that in the same period last year. The BPS,
meanwhile, reported a 27 percent increase in exports to $40.58
billion during this year's first semester.

Susilo, however, admitted that the growth target would still
be unable to reduce the overall level of unemployment and poverty
in the country.

"Nevertheless, our economic growth is expected to continue to
increase in the years to come, along with our success in
overcoming the existing impediments," he said, reiterating the
government's vow to improve the country's investment climate by
curtailing corruption, ensuring legal certainty for investors and
providing tax incentives.

Susilo said next year's budget planned for a deficit of Rp
19.8 trillion (some US$2 billion).

Revenue was targeted at Rp 539.4 trillion -- mostly from
taxes, reaching 13.4 percent of the GDP from its current 12.6
percent -- while total expenditure was set at Rp 559.2 trillion.
The government said it planned to reduce the burden of the fuel
subsidy on the budget from Rp 76.5 trillion to Rp 68.5 trillion.

Susilo's administration aims to achieve a balanced budget by
2007.

To finance next year's deficit, the government will issue more
bonds, continue the privatization of state-owned enterprises and
conduct sales of state assets managed by the Asset Management
Company (PPA).

"We will also still need foreign loans, estimated at some Rp
29.9 trillion," Susilo said, adding however that the government
expected the country's debt-to-GDP ratio to continue to decrease
next year to 42.8 percent from 49.1 percent this year.

Reacting to the address, many legislators expressed their
skepticism about the draft, particularly regarding the oil price
assumption, which they suggested should have been set at a more
realistic level of between $50 and $60 a barrel.

The House is expected to finish deliberating the budget draft
with the government by September.