Govt, House agree to cut 2003 growth forecast to 4%
Govt, House agree to cut 2003 growth forecast to 4%
The Jakarta Post, Jakarta
The House of Representatives' committee and the government
agreed to slash next year's economic growth forecast by a full
percentage point to 4 percent, and inject Rp 5.9 trillion (about
US$641 million) more into the economy to soften the blow from the
Oct. 12, terrorist strike in Bali.
"The blasts are costing our economy dearly. Calculations show
that the economy in 2003 will only grow by a modest 3.4 or 3.5
percent if we don't respond (to the blasts)," finance minister
Boediono told the House budget committee on Thursday.
"With a Rp 5.9 trillion stimulus package, which would add to
development spending, the economy could still grow by 4 percent,"
he said, explaining Rp 4.9 trillion of that amount would go into
development spending while the rest would serve as an emergency
fund.
A lower growth figure means that poverty and unemployment in
the country would continue to grow rather than decrease, which
might have been possible if the economy grew by 5 percent as
initially projected.
Five years after the economic crisis, some 38 million people
are still languishing in poverty and there are at least an
equally large number of people without jobs.
Analysts have said Indonesia's economy must grow by at least 5
or 6 percent to effectively reduce unemployment and poverty.
Economic prospects, however, have worsened since the Oct. 12,
Bali bombing.
The attack paralyzed the tourist sector, and sapped already
flimsy business confidence in an economy that relies heavily on
consumer spending for growth.
During Thursday's meeting the government proposed to House's
committee a set of changes to its 2003 draft budget. The
government submitted the first draft in August, before the Bali
bombing forced it to return to the drawing board.
Budget assumptions on the annual inflation rate jumped to 9
percent from 8 percent, and the average annual rupiah exchange
rate against the U.S. dollar weakened to 9,000 from a previous
8,700.
The government-proposed revisions were agreed on by the budget
committee, but these figures may still change as talks for a new
budget are ongoing.
Finance minister Boediono warned legislators of a wider
deficit, citing decreased state revenue and the Rp 5.9 trillion
stimulus package.
He gave no figure, but unconfirmed reports cited the budget
deficit could swell to 1.5 percent from 1.3 percent of gross
domestic product (GDP), which measures the total value of goods
and services a country produces every year.
To help plug the wider than expected deficit, Indonesia will
likely turn to its creditor countries under the Consultative
Group on Indonesia (CGI).
An informal meeting with CGI members is slated for Friday
(today) to discuss additional loans to help Indonesia cope with
the Bali fallout.
The meeting sets the ground for the CGI annual meeting early
next year, when creditor countries would pledge fresh loans to
help Indonesia finance next year's budget deficit.
By then the House must finalize and pass the draft budget into
law to allow the CGI to calculate how large a loan the budget
needs.
Economists, however, said the 4 percent downgrade in growth
might still be insufficient.
"At the moment the 1 percent seems to be quite a sufficient
downward revision," said economist and PT Paramitra Securities
president director David Chang. "But I think further downgrades
are very possible, given the (probable) difficult political
stability and business conditions next year."
Even before Oct. 12, Indonesia has been hard-pressed to raise
investment under a business environment infamous for its poor
legal protection and political instability. And since Oct. 12,
security is now back on top of investors' concerns.
Standard Chartered Bank economist Fauzi Ichsan agreed that a 4
percent growth rate was overly optimistic, as he estimated a rate
of just 3.5 percent next year.
"The stimulus package doesn't sound very significant to me
considering our tight state budget," he said.