ASEAN KEY DESTINATIONS
Government moves to draft conservative 2015 budget
Indonesia: The next administration may have limited room to speed up economic growth as the existing Cabinet is proposing a conservative 2015 state budget that would prolong tight policy making until the end of next year.
Economic growth will be targeted to hover at 5.5 percent to 6.3 percent next year, Finance Minister Chatib Basri told reporters during the National Development Planning Conference (Musrenbangnas) last week.
The bottom line for economic growth, 5.5 percent, if realized would be the country’s slowest since 2009, when the global economy felt the pinch from the US financial crisis.
“In terms of budget formulation, it’s better to be conservative,” Chatib said.
“Our bottom line estimate of 5.5 percent was driven by the possibility that the current [fiscal and monetary] tightening would still have an impact, hence, affecting growth next year, particularly investments.”
The minister suggested the next administration remain committed to prioritizing stability over growth next year, warning about the lingering external risks that would still pose threats to the economy.
The risks, he said, included the possibility that the US central bank could hike its interest rates faster than expected, triggering a broad-based fund outflow that could hurt Indonesia. In addition, global economic recovery would likely stay sluggish, with Indonesia’s economy being particularly vulnerable to the ongoing slowdown in China, its biggest trading partner.
“In the upcoming years, it is an almost certain that China would only grow at between 7 to 8 percent, such a slowdown would affect our exports,” Deputy Finance Minister Bambang Brodjonegoro added. China posted double digit growth several years ago, with the world’s second-biggest economy growing by an impressive 10.4 percent in 2010.
Besides tabling a conservative growth target, the government also assumes the rupiah will trade at between 11,500 to 12,000 per US dollar next year, which would be weaker than this year’s assumption of 10,500, as stipulated in the 2014 state budget.
For next year, inflation is targeted to hit 3 to 5 percent, while the yield for three-month treasury bills is assumed to be 5.5 to 6 percent. Meanwhile, oil and gas production is estimated to hit in the range of 830,000-890,000 and 1.23-1.25 million of equivalent barrels of oil per day (bpd), respectively.
Chatib also dropped hints that he would confront political opposition and proceed with his plan to implement a fixed-based subsidy scheme, which would allow the government to adjust the price of subsidized Premium gasoline automatically based on fluctuations in oil prices and currency.
In the 2015 state budget, the government will “redesign the subsidy policy by changing the current subsidy system”, the minister said in his presentation during the conference.
Telisa Aulia Falianty, an economist from the University of Indonesia (UI), argued that the government had no choice but to table a conservative design for the 2015 state budget, as Indonesia would face a challenging economic landscape due to the implementation of ASEAN Economic Community (AEC) next year.
The AEC, which will lower trade barriers and smooth the flow of goods and services in the Southeast-Asia region, may pose a risk to Indonesia’s economy in the short term.
“Indonesia’s market will be exploited by the AEC [...] next year the country will be flooded by higher imports, a situation that may put our foreign exchange reserves and the rupiah at risk,” Telisa warned.
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