News Room - Business/Economics

Posted on 04 Aug 2009

Indonesia eyes 5% growth target for 2010

Southeast Asia's biggest economy will grow at 5 per cent next year after another round of stimulus spending worth more than six billion dollars, according to a draft budget released on Monday in Indonesia.

 

President Susilo Bambang Yudhoyono proposed a deficit of 98 trillion rupiah (9.98 billion dollars), or 1.6 per cent of gross domestic product (GDP), compared to the 2.5 per cent of GDP target for 2009.

 

Yudhoyono said the government would spend an additional 61.2 trillion rupiah to boost the economy next year, slightly less than the 70 trillion allocated for extraordinary stimulus measures this year.

 

Further stimulus spending would help achieve 5 per cent growth in 2010, which is at the lower end of previous government forecasts.

 

Yudhoyono, who was re-elected to a second five-year term last month on the back of sound economic management and an anti-corruption drive, said Indonesia was in good shape to weather the global economic storm.

 

"As a country with an open economy, Indonesia certainly cannot disengage itself from the impact of the downturn of global economic activities," the liberal ex-general said.

 

"Nevertheless, due to the rapid, appropriate and measured ... action, Indonesia's position was relatively speaking far better off than other countries."

 

The government has predicted economic growth of 4.0-4.5 per cent this year, third only to China and India in the G20 club of rich and developing countries. The economy grew 6.1 per cent in 2008.

 

Inflation would remain low at about 5 per cent in 2010 and the rupiah would stay steady around 10,000 to the dollar, according to the draft budget.

 

Strong domestic demand in the country of 234 million people, as well as its relatively low exposure to export markets hit hard by the global recession, have insulated Indonesia from the global crisis.

 

Yudhoyono reminded lawmakers that only a decade ago Indonesia was on the brink of bankruptcy as the Asian economic contagion swept the region, causing currencies to tumble and banks to collapse.

 

But reforms after the fall of the Suharto dictatorship in 1998 have paid economic dividends, he said.

 

"After 11 years of 'reformasi', we have succeeded to build our domestic economy stronger and more self-reliant," he said.

 

"As a matter of fact, with Indonesia's membership in the G20, we are now precisely at the forefront in the effort to find a global solution to the current world economic crisis."

 

He said the government's spending priorities included poverty reduction, education, health, infrastructure development and bureaucratic reform.

 

Basic salaries for civil servants would rise 5 per cent and daily meal allowances for soldiers and police would increase 14.28 per cent to 40,000 rupiah.

 

The government would spend 144.4 trillion rupiah on subsidies – especially on fuel, food and fertiliser – or more than 14 per cent of the total budget.

 

Gadjah Mada University economist Sri Adiningsih said the government should have allocated more for stimulus spending.

 

"Expenditure of 61.2 trillion rupiah is not enough to stimulate the economy. We need at least 100 trillion rupiah just to improve the infrastructure like broken roads and old dams," she said.

 

In an annual review, the International Monetary Fund last week said Indonesia had taken "timely and appropriate" action to ease monetary policy last year, but additional fiscal stimulus efforts would be needed.

 

It said the economy would expand by 3.5 per cent this year, rising to 4.5 per cent in 2010.

 

The draft budget must be approved by parliament before it is implemented from January 1 next year.