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.