Govt to launch stimulus package

The Jakarta Post, Jakarta

The government is planning to introduce a stimulus package to help revive investments and cushion the economy from the impact of the latest terror attack in the country.

"God willing, there will be an economic package to help boost business activities, as well as investments. It'll be like a stimulus package to improve our investment climate," Minister of Finance Boediono told reporters on Wednesday.

The planned package, Boediono said, was needed as economic growth would depend on investment and business activities.

Analysts have said that the deadly bomb blast at the JW Marriott Hotel would further hurt confidence in the ailing economy as nervous investors might shelve investment plans and the local corporate sector could find problems in raising cash overseas.

Boediono did not provide details. It is still unclear whether the stimulus would be in the form of a tax-break facility for businesses or other measures such as streamlining the bureaucracy.

Boediono also did not elaborate as to the impact of such a plan on the state budget as any stimulus -- which could either cause higher spending or lesser revenue -- would put more constraint on the already tight budget.

However, according to economist Raden Pardede, as far as the 2003 budget was concerned, fiscal stimulus was feasible, without having to harm the estimated full-year budget deficit given the modest figures posted during the first semester of this year.

The state budget has targeted the deficit at Rp 34.4 trillion, but it booked only Rp 2.5 trillion in actual deficit as of June.

"Such low (budget) deficit realization should give greater room for the government to improvise by providing a sort of stimulus to pick up the pace of economic development," said the economist from the Danareksa Research Institute.

A well-arranged fiscal stimulus, be it in the form of higher share of the development spending or various dispensation facilities, would not create a crash in the budget.

But more importantly, Raden added, it would provide a confidence boost to the business community and therefore the economy as a whole, at a time when they needed it most.

Stimulus has been familiar to the government recently.

Following the Bali bombing incident last year, a Rp 10 trillion (US$1.22 billion) stimulus package was provided to help cushion the economic impact, the amount of which was added into allocation of development spending.

During 2003, the government has also twice introduced stimulus to improve the business climate, both in the form of tax-break facilities for certain industries. The first, worth around Rp 6 trillion, was issued in January, in which the luxury tax on 45 products, mainly electronics, was eliminated.

The second was in May, when the government decided to waive the 10 percent value added tax (VAT) on the import of certain capital goods and raw materials such as machinery and factory equipment, along with raw materials for the agricultural, fishery, forestry and animal husbandry sectors.

Elsewhere, Boediono reiterated that despite the bombing incident and measures to minimize the impacts, the 2003 state budget would remain "safe", and unaffected by the event. He said that the budget deficit target of 1.8 percent of gross domestic product was still achievable.

Meanwhile, Daniel Citrin, visiting senior advisor of the International Monetary Fund (IMF), which called the blast as a "terrible tragedy" to the economy, had full confidence in the government's ability to restore economic stability.

"I'm sure the government will do whatever it needs to do to stabilize the situation, and to maintain its economic program remains on course," Citrin said without elaborating whether the necessary actions include introducing another stimulus.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti was confident that the country's economic recovery remain on track. "The recovery after the Bali bomb was faster than expected, showing our economy's resilience," he said.