Minister sees lower growth next year

Minister sees lower growth next year

Rendi A. Witular, The Jakarta Post, Jakarta

With the impact of the recent economic slowdown set to continue
until the second half of next year, the economy would likely grow
slower than expected, Minister of Finance Sri Mulyani said on
Tuesday.

"From the projections made by the government and other
institutions, economic growth next year is likely to head
downward," said Mulyani, after meeting President Susilo Bambang
Yudhoyono and Vice President Jusuf Kalla on Tuesday.

"The (current) slowdown will affect economic activities and
state revenues ... Many believe that next year's growth will
stand between 5.3 percent and 5.7 percent, with the government
now gathering efforts to improve it," she said.

The government officially forecast the economy to grow by 6.2
percent next year, as stated in the 2006 state budget.

Inflation has accelerated to 18.4 percent in the first eleven
months of the year, the highest in six years, with the central
bank being forced to raise its key interest rate. The benchmark
rate now stands at 12.75 percent.

High inflation and interest rates have contributed to a
slowdown in the economy as they have put a brake on the
consumption-driven economy, with both consumer loans and credit
for business expansion becoming more expensive.

The economic slowdown has become even been apparent this year,
with growth being on a declining trend since the start of the
year. Expanding by 6.1 percent in the first quarter, the economy
grew slower in the following two quarters; 5.8 percent and 5.3
percent respectively.

For the full-year, the economy would likely expand by 5.5
percent, as compared to the 6 percent target.

Bank Indonesia governor Burhanuddin Abdullah recently told the
President that economic growth would be between 5 percent and 5.7
percent next year.

At Tuesday's meeting, Sri Mulyani also informed Susilo and
Kalla of several economic challenges for next year, including a
higher burden in servicing interest on government debt as a
result of higher interest rates.

Under the 2006 state budget, the government will spend around
Rp 91.6 trillion (US$9.25 billion) for servicing debts, both
principal and interest, next year. The figure is based on
assumptions that the rupiah will average Rp 9,900 to the U.S.
dollar, inflation at 8 percent, and three-month Bank Indonesia
interest rates at 9.5 percent.

"High interest rates until the second half will severely
affect our expenditure for servicing debt. A one percent rise in
the rate will cost the government an additional Rp 3 trillion
(about US$300 million) in interest payments," said Sri Mulyani.

Other problems next year include a decline in state revenues
amid increasing public service wages, and larger development
allocations to stimulate the economy.

"We have to be more prudent in managing our fiscal position
next year in order to avoid the deficit exceeding 0.7 percent.
Lower revenue from taxes as a result of the economic slowdown is
likely to affect our state budget," said Mulyani.

Indication of a decline in tax revenue has already become
apparent this year with the tax office likely to fall short of
reaching its Rp 351.9 trillion target by Rp 3.51 trillion, or
about one percent.

For non-tax revenues, the government would likely only secure
66 percent of the targeted Rp 180.6 trillion.

Many economists calculate that a one percent increase in
economic growth could absorb up to 400,000 job seekers.