House want Rp 20 trillion economic stimulus

Dadan Wijaksana, The Jakarta Post, Jakarta

The House of Representatives' budget committee is seeking a stimulus package of up to Rp 20 trillion (about US$2.2 billion) for next year's state budget to help the economy cope with the impact of the Bali bombing, a legislator said on Thursday.

The government's proposed package amounts to Rp 5.9 trillion.

"Such an allocation is too small. The stimulus wouldn't be effective because that amount marks an insignificant addition to development spending," the House's budget committee deputy chairwoman Angelina Patiasina told reporters after a hearing with the government.

Additional spending by Rp 5.9 trillion alone, would inflate the budget deficit to an estimated 1.6 percent from 1.3 percent of gross domestic product (GDP), which measures the country's annual output of goods and services.

"It would be good if we can keep the deficit low, but I think development spending could be increased by Rp 20 trillion," Angelina said without saying where the government would raise the money from.

She said it was possible to limit the subsequent deficit increase to between 1.7 percent to 1.8 percent of GDP.

The House and the government are in talks over revisions to the 2003 draft state budget to take account of the economic fallout of the Oct. 12, Bali bombing.

Tax revenues have been slashed by around Rp 7 trillion on fewer spending activities as renewed security jitters undermine business confidence.

Still, Angelina was upbeat that income as a whole could rise by as much as Rp 9 trillion from the initial target of Rp 327.8 trillion.

She said additional revenue could come from higher oil exports as world oil prices had strengthened.

Reflecting the upward trend, the government revised its oil price assumption to $22 per barrel from $20.5 per barrel.

The Indonesian Bank Restructuring Agency (IBRA), which sells state assets to fill out the budget deficit, has seen its target raised to Rp 18 trillion from Rp 12 trillion.

However, much of the higher targets would be offset with higher expenditure such as interest payments on domestic debts.

The terrorist strike, which killed more nearly 200 people, dealt a massive blow not only to the tourism sector but also to the overall investment climate in Indonesia.

Among the first downward revisions to the state budget was next year's economic growth forecast, now down by a full percentage point to 4 percent.

Indonesia however needs to grow by at least 5 to 6 percent to effectively reduce its mass unemployment rate and lift millions out of poverty.

An increase in development spending is seen as crucial to mitigate the impact of the Bali bombing, marked by mass lay offs in the tourism sector, and a plunge in investment spending.

The state budget can help stimulate the economy by way of channeling more money into economic sectors like construction.

Aside from government funded investment projects, additional projects plans have been drawn up to restore Bali's tourism sector.

But even at just Rp 5.9 trillion for a stimulus package, the government will need additional aid from its major creditor countries under the Consultative Group on Indonesia (CGI).

An informal CGI meeting early November ended with creditors promising more aid to help Indonesia cope with the Bali fallout.

Although no amount has been pledged, the World Bank which chairs the meeting, said Indonesia's financial needs because of the Bali bombing was "not too significant" and later indicated the extra loans at several hundreds millions of dollars.