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NEWS UPDATES Asean Affairs        11  June 2011

Indonesian deficit to exceed GDP

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The budget deficit may widen relative to economic growth this year, the finance minister said on Friday, as Indonesia seeks to boost spending on projects including infrastructure development.

"We expect that the allocation for ministries and other government institutions will rise when the budget is revised," with the deficit expected to widen to more than 2 percent of gross domestic product, Agus Martowardojo told reporters in Jakarta.

This year's budget shortfall is forecast to reach Rp 124.8 trillion ($14.6 billion), or 1.8 percent of GDP, according to state budget documents. Agus did not provide the expected nominal value of next year's budget shortfall.

The government's budget has been in deficit since the Asian financial crisis more than a decade ago. The government has been selling rupiah and dollar-denominated bonds to plug the shortfall.

Last month the government released an initiative known as the Master Plan for the Acceleration and Expansion of Indonesian Economic Growth, or MP3EI, which, at a cost of Rp 4,000 trillion, aims to boost the country's GDP to $4.5 trillion by 2025.

Heri Purnomo, the director general of the budget at the Finance Ministry, said the additional funds for ministries and government institutions would be used to accelerate the country's development, particularly in infrastructure, the backbone of the country's economy.

"The president's acceleration program should be supported," Heri said, referring to the MP3EI.

The master plan will establish six economic corridors, each with specific advantages. Sumatra has been pegged as a center for agriculture and energy, Kalimantan for mining and energy, Sulawesi and North Maluku for agriculture and fisheries, Bali and Nusa Tenggara for tourism and food production, Papua and Maluku for natural and human resources and Java for industry and services.

In the program, 17 infrastructure projects valued at Rp 190 trillion are scheduled to start this year, with the government having earmarked Rp 135.8 trillion for capital spending.

It has said it can provide only 30 percent of the projected total cost of Rp 4,000, with the rest expected to come from the private sector.

Agus also said that state institutions should cut spending so that more funds could be allocated to priorities programs, in order to prevent the deficit from rising above 2 percent of GDP.

The government is scheduled to submit the 2011 budget revision to the House of Representatives in early July, and expects it to be finished by the end of the month, Agus said.

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