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NEWS UPDATES Asean Affairs     29 October  2011

Indonesian budget to reduce national debt

Indonesian lawmakers approved next year’s budget at a plenary meeting on Friday, passing a plan that aims to reduce government debt and the national deficit.

The budget set revenue and expenditure totals at Rp 1,311.4 trillion and Rp 1,435 trillion ($149.5 billion and $163.6 billion), respectively. That would put next year’s deficit at Rp 123.6 trillion, equivalent to 1.5 percent of Indonesia’s gross domestic product. This year’s deficit reached 1.8 of GDP.

The new budget also looks to reduce the government’s outstanding debt to 24 percent of GDP, down from the 25 percent expected this year.

The budget was calculated based on assumptions of six macroeconomic indicators: economic growth, inflation, the rupiah’s value against the US dollar, treasury bills, oil production and oil prices.

Economic growth was forecast at 6.7 percent next year compared to 6.5 percent expected this year, while inflation was set at 5.3 percent as opposed to 5.65 percent this year.

The rupiah was assumed to trade next year at 8,800 against the US dollar compared to this year’s assumption of 8,700, and the three-month bills rate was set at 6 percent, down from 6.5 percent this year.

Indonesia plans to increase its crude-oil production to 950,000 barrels a day, up from its 945,000 daily target for 2011. Next year’s oil prices were assumed to be $90 per barrel, compared to $80 in the initial 2011 budget and $95 in the revised budget.

Finance Minister Agus Martowardojo said he was confident that next year’s budget was “solid enough to mitigate the impact of a possible global crisis’’ as it allowed the government to use unspent money from previous budgetary years to stabilize the bond market should major volatility occur.

Last month, fears of a continued deterioration in global financial conditions because of the euro zone debt crisis and slowing US economic growth prompted foreign investors to unload more than Rp 30 trillion government bonds, which drove up yields.

Dilip K. Shahani, head of global research at HSBC Asia-Pacific, said the government had shown an understanding of global financial problems and had taken the necessary steps to prevent them from impacting domestic growth.

“I think the growth target should be attainable. They have the room to adjust if the problems are more severe,” Shahani said. HSBC has predicted that Indonesia’s economy, the largest in Southeast Asia, will grow by 6 percent to 6.5 percent next year.

Since inflation will be tame next year, Shahani said, the central bank has room to encourage liquidity in the banking system to stimulate business and encourage growth.

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