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NEWS UPDATES Asean Affairs   9  December 2010

Indonesian deficit down to slow spending

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The government has trimmed its budget deficit target for this year from 2.1 percent to below 1.5 percent of gross domestic product, to reflect sluggish state spending, Finance Minister Agus Martowardojo has said.

"We estimated earlier in our first semester report that the deficit would be 2.1 percent this year. However, I think the deficit this year might be below that," Agus said on Wednesday, adding that the original target was equal to Rp 133 trillion ($15 billion).

He did not disclose the nominal value of the revised budget shortfall.

Government spending has been sluggish, with regional officials reluctant to spend funds allocated by the central government for fear of being implicated in corruption cases.

As of November, the government had spent only 72.6 percent, or Rp 817 trillion, of its budget, short of this year's expenditure target of Rp 1,126 trillion.

State revenue was expected to reach Rp 992.4 trillion. The Finance Ministry said in September that it wanted to limit the deficit to 1.7 percent of GDP to maintain a healthy fiscal position as part of efforts to achieve a good investment grade credit rating.

Credit rating agency Moody's this month placed Indonesia on review for another possible upgrade after raising its credit rating outlook to positive in June, citing economic resilience and a prudent policy framework.

Analysts have warned, however, that a lower-than-expected budget deficit could hurt the economy in the long run, since it might hamper plans to improve the country's infrastructure.

"The finance minister should not think like a corporation, where lower deficits mean smaller losses," said Tony A. Prasetiantono, an economics and public policy expert at Yogyakarta's Gadjah Mada University.

"Sometimes, a deficit means the government wants to boost economic growth in the long term."

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