Govt OKs Rp 10.5t to stimulate economy

Govt OKs Rp 10.5t to stimulate economy

Dadan Wijaksana, The Jakarta Post, Jakarta

The government has agreed to allocate Rp 10.5 trillion (about
US$1.1 billion) in additional development spending next year to
stimulate the economy hurt by the impact of the Bali bombing.

The agreement was reached during Monday's meeting with the
House of Representatives' budget committee, which initially
sought a stimulus package of up to Rp 20 trillion.

Committee chairman Abdullah Zainie said the Rp 10.5 trillion
was the highest amount both sides could agree on under the tight
constraints of the state budget.

"The (amount of) stimulus is still within our reach as far as
the budget is concerned," Abdullah said during the House
committee's plenary meeting on the 2003 budget.

The government initially proposed in its 2003 budget draft a
stimulus package worth Rp 5.9 trillion to partly offset a likely
plunge in private investment spending after the Bali bombing.

Legislators, however, ruled that the amount was too small to
meet next year's economic growth target, even after it was
lowered to 4 percent from 5 percent.

The government had to revise its 2003 draft state budget to
take into account a plunge in the tourism sector and private
investment spending following the terrorist strike in Bali.

Additional development spending under the stimulus package
could spur investment in sectors, such as construction, and help
absorb some of the unemployment.

On the downside, however, the budget lacks revenue, which
means that next year's deficit will be more extensive than
expected.

Abdullah said that although the stimulus package nearly
doubled, the impact on the deficit would be kept as low as
possible.

With additional spending, next year's expected budget
shortfall will swell to about Rp 34 trillion, accounting for 1.77
percent of the gross domestic product (GDP), which measures the
country's annual output of goods and services.

With a stimulus of Rp 5.9 trillion, the expected deficit is
set at 1.5 percent of GDP.

To cover the wider than expected budget deficit, Abdullah said
the budget would need extra financing from Indonesia's foreign
creditor countries.

He said earlier that the budget might need another $300
million from its creditors in the Consultative Group on Indonesia
(CGI).

This would bring the total amount that the CGI needs to raise
to about Rp 29 trillion from the Rp 26.1 trillion initially
expected.

The group had earlier promised to provide Indonesia with extra
loans to cope with the impact of the Bali bombing, however the
amount has yet to be agreed on during January's CGI meeting.

Abdullah added that domestic financing to plug the budget
deficit would mainly come from selling state companies and assets
under the Indonesian Bank Restructuring Agency (IBRA).

Last night's plenary meeting should have ended weeks of closed
door meetings to revise the draft budget. However, several issues
on the allocation of funds to regions remain unresolved.

Legislators agreed to postpone approval of the budget until
next Monday, providing that the contentious issues are resolved
by then. Discussion over funding continues on Tuesday.

Under the original budget draft, funding allocation for
regions was set to total Rp 77.7 trillion, but several
legislators have demanded the figure be lowered.