Tue, 27 Jul 2010

From: Reuters

JAKARTA: Indonesia's finance minister said the government expected its economy to grow at a faster than budgeted 5.9 per cent this year and predicted a smaller-than-forecast budget deficit.

The stronger government finances may lead Southeast Asia's top economy to cut its debt issuance target for the rest of the year, which could boost its bonds and strengthen the case for its credit rating to be raised investment grade.

The government recorded a surprise budget surplus of 47.9 trillion rupiah (100 rupiah = RM0.035) in the first half of the year, and sees a full-year deficit of 95.1 trillion or 1.5 per cent of gross domestic product (GDP), versus an earlier forecast of 2.1 per cent of GDP.

"For bonds, this is a healthy thing. You don't want a government spending more than expected and in this case that's not an issue. This a relatively good number," said Wellian Wiranto, economist at HSBC in Singapore.

The finance minister, speaking in parliament on Monday, said full-year gross domestic product growth was now forecast at 5.9 per cent, slightly higher than the government's budgeted 5.8 per cent, as exports and investment were forecast to expand 10.7 per cent and 9 per cent year-on-year respectively in the second half of the year.

Strong economic growth, increasing consumer demand and high returns have led investors to pour money into Indonesian markets in the past year, boosting the stock market and foreign ownership of local bonds to record highs this month.

"For investors, it's the same rosy picture. We don't think there's a huge underlying pressure for inflation ... The growth numbers are more or less in line with expectation," Wiranto said.

The central bank's governor-designate Darmin Nasution reiterated in a statement that inflation in 2010 will be at the upper end of a 4 per cent to 6 per cent target range.

The central bank has said there will be no rate hikes this year. - Reuters