Sat, 10 Apr 2010

From: The Jakarta Globe

By Dion Bisara & Reuters
The government is proposing to lift the nation’s 2010 growth forecast as high as 6 percent this year, in line with favorable macroeconomic indicators, Finance Minister Sri Mulyani Indrawati said on Friday at the House of Representatives.

“A rise to between 5.5 percent to 6 percent is very likely,” Sri Mulyani said in a meeting with House Commission XI to discuss revisions to the 2010 state budget. The current government growth forecast is 5.5 percent.

Sri Mulyani noted that this year’s growth would be driven by rising investment, which the government estimates to increase by 7.8 percent this year, as Indonesia has been among the top choices for international investors following the global financial crisis.

“Moreover, China will start to deplete its work force and inflation in India has touched double digits. This make investors search for other alternatives and Indonesia is one of them,” she said.

“Exports will also grow by 18.9 percent this year in line with increasing global trade volumes,” she predicted.

After the government and lawmakers conclude negotiations over the budget revisions, a draft will be sent to a House plenary session.

Also optimistic was Darmin Nasution, the acting central bank governor, saying growth would come in “near the upper end” of Sri Mulyani’s range. “We [expect] the economy will grow by 5.5 percent to 6 percent in 2010. It is very possible to hit nearly 6 percent,” he told the House commission.

On other macroeconomic assumptions, the government will raise its inflation target to 5.7 percent from 5 percent, but Sri Mulyani said the new figure was still very mild.

“Actually it is the upper threshold. Relatively tame inflation in the first three months this year gives room for prices to slightly pick up in second half due to rising commodity and electricity prices,” she said.

Darmin set an inflation target for this year of 5.2 percent, after taking account of the likely impact of the electricity price hike, which the government plans to implement in June.

The government will raise its budget deficit forecast of 2.1 percent of gross domestic product, or 129.8 trillion rupiah ($14.4 billion), compared with a previous estimate of 1.6 percent of GDP, or 98 trillion rupiah, partly as it plans to spend more on subsidies and infrastructure.

Sri Mulyani said that, in a bid to reduce unemployment to 7.5 percent to 8 percent this year, the government would boost spending on infrastructure and the National Program for Community Development (PNPM). The government will also lift its allocation for infrastructure projects to Rp 105.6 trillion in the revised budget from Rp 93.7 trillion in the original.

Golkar Party lawmaker Harry Azhar Azis, who chairs the House budget committee, said the government must be more transparent about the unemployment target. “I will demand the government to state how many jobs will be created for every billion it spends in this year budget.

Singapore brokerage DMG & Partners Securities said in a research note that the Rp 73.3 trillion in fiscal stimulus introduced in 2009 was likely to lift growth this year, “notably in most of the infrastructure sectors. Thus, we also expect investment expenditure [forecast at 3.9 percent] to add fuel to Indonesia’s engine of growth.”

DMG expects 2010 economic growth to come in at 5.7 percent.