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TextaJanuary 15, 2009

Indonesia sees need to revise budget to maintain growth

A quick revision of the 2009 state budget is necessary as a delay would vent momentum pushing economic growth, which is essential to "neutralise" the impacts of the global financial crisis.

“It is indeed too early to make a prediction as January is not even over, [but] we have seen in the last three months a weakening [economic] trend,” The Jakarta Post quoted Finance Minister Sri Mulyani Indrawati as saying Wednesday.

“A more accurate prediction perhaps [can be seen] when the first quarter figures come. But if we wait for that, we will lose a lot of momentum needed to neutralise the impact of this global crisis.”

She was commenting on the government's announcement Tuesday that it will revise this year's budget.

Under the revision, which must be cleared by the House of Representatives, the government raises the deficit to 2.5 percent of GDP, or 132 trillion rupiah ($12 billion), more than twice the 51.3 trillion rupiah initially forecast, to fund economic expansion.

The higher deficit is due to higher spending combined with a lower revenue as a result of the global crisis.

The government will provide stimulus packages, meaning it will spend more to stimulate growth, while revenue will decrease due to declining tax revenues.

The deficit gap will be plugged by 51 trillion rupiah of unspent funds from the 2008 budget, and additional foreign loans worth 30 trillion rupiah.

To boost growth, the government will add 15 trillion rupiah in stimulus for businesses and households, 4.8 trillion rupiah of which will be spent on electricity tariff discounts and diesel subsidy for motorists, and the rest on infrastructure and poverty alleviation programs.

The figure is far lower than the 38 trillion rupiah of business stimulus earlier promised by President Susilo Bambang Yudhoyono.

Bambang Soesatyo of the Indonesian Chamber of Commerce and Industry said the change in the amount could confuse businesses as to which sectors would receive the stimulus.

“The change of the allocated amount for the economic stimulus could create uncertainty for domestic businesses.”

The Finance Ministry’s head of fiscal policy Anggito Abimanyu said the 15 trillion rupiah stimulus would complement the 12.5 trillion rupiah already allocated for the budget to compensate for lost revenue due to waived income and value added taxes and waived imports duty.

He said the 38 trillion rupiah stimulus would be in the form of other tax incentives.

The Finance Ministry will waive value added taxes only for industries purchasing end products,including cooking oil, oil and gas, and biofuels, he said.

Mulyani said the office of the Coordinating Ministry for the Economy would decide which business sectors would receive the 15 trillion rupiah stimulus.

Standard Chartered economist Fauzi Ichsan said the stimulus would boost growth only if the central and local governments spend the money efficiently.

“What is most important is the implementation. Over the past four years, the problem has been that [the government's] spending has been too slow. If it can be sped up, the economy may achieve a 5 percent growth.”

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