JP/13/budget

Govt paints upbeat picture for 2006

Urip Hudiono The Jakarta Post/Jakarta

The government unveiled on Wednesday macroeconomic indicators that would become the basis for the drafting of the 2006 state budget, casting for higher economic growth, and lower inflation and deficit targets compared to 2005.

The government is also optimistic that the rupiah will be stronger next year, but has taken into consideration the country's declining oil production.

Speaking at the opening of a three-day National Development Planning Plenary Meeting to draft next year's Government Action Plan (RKP), Minister of Finance Yusuf Anwar said the government expects the economy to grow at 6.1 percent on improving exports and investment, in addition to stronger domestic consumption.

"The economy will grow faster, from 5.5 percent this year to between 5.5 percent and 6.5 percent in 2006," he said.

"The inflation rate, meanwhile, will be in the range of 4.5 percent and 6.5 percent, with the rupiah stabilizing in line with our economy's improving competitiveness."

In a revision to the 2005 budget -- scheduled for deliberation by the House of Representatives next month -- the government is projecting economic growth of 5.5 percent, from a previous 5.4 percent.

Faster economic growth is crucial in helping the country deal with chronic poverty and unemployment. Every 1 percent of economic growth is calculated to be able to absorb up to 400,000 new workers.

Each year, up to 2.5 million new workers enter the job market.

The government also revised upward the country's on-year inflation rate to 7.0 percent from 5.5 percent, while setting a deficit target of 0.8 percent.

Yusuf explained that the government's fiscal policies for next year would continue this year, outlining further fiscal consolidation efforts in terms of the deficit and the country's debt ratio, while implementing more effective and manageable state financing schemes.

"The government aims to continue lowering the budget deficit gradually, from 0.8 percent this year to between 0.5 and 0.7 percent next year," he said.

"We will also decrease the country's debt to gross domestic product (GDP) ratio from 47.5 percent this year to between 42.5 percent and 43.3 percent next year."

Yusuf explained that implementing sustainable state financing schemes was important, and it would be one of the main challenges in achieving next year's targets, with the state experiencing decreasing revenues and increasing expenditures.

State expenditure this year alone is estimated to reach Rp 463.3 trillion (US$48.7 billion).

"Our opportunity to offer government bonds to help finance the budget is becoming more limited, as the (bond) market could become saturated," he said.