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January 28, 2009

Indonesia unveils $6.3bn stimulus plan

After giving conflicting figures, the government has finally set the stimulus at 71.3 trillion rupiah ($6.31 billion) to boost the economy amid the threat of crisis, reported the Jakarta Post.

The package will include the 27.5 trillion rupiah stimulus previously announced, and is higher than the figure of 50 trillion rupiah touted by President Susilo Bambang Yudhoyono.

The new stimulus revolves around tax savings worth 43 trillion rupiah, waived taxes and import duties for businesses and certain households, worth 13.3 trillion rupiah, as well as subsidies and government spending of 15 trillion rupiah for businesses.

Speaking before the House of Representatives' Commission XI, which oversees financial affairs, Finance Minister Sri Mulyani Indrawati said the stimulus was aimed at increasing people's purchasing power, the competitiveness and sturdiness of businesses facing the economic downturn, and labor-intensive infrastructure spending.

Mulyani said the stimulus "is everything that cuts costs borne by businesses and the people", when asked why the stimulus was not fully designed to support businesses.

The incentives include paying the income taxes of employees — now paid by businesses — of up to 6.5 trillion rupiah, subsidising diesel by 2.8 trillion rupiah, and increasing infrastructure spending by 10.2 trillion rupiah.

According to the ministry, Indonesia's 71.3 trillion rupiah stimulus package accounts for 1.4 percent of the country's GDP, higher than the recently announced US stimulus, percentage-wise, which only accounts for 1.2 percent of the GDP.

The government forecasts the economy to grow between 4.5 and 5.5 percent this year, a drop from an estimated 6.2 percent in 2008.

The global downturn is affecting Indonesia’s economy on all fronts, from weakening demand for exports and slowing down flows of investment, to reducing consumer purchasing power.

Businesses have long warned that massive layoffs could hit Indonesia when the impact of the global crisis hits home the hardest some time in the middle of this year.

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