Indonesia on track for high growth: Govt

Wednesday, 18 August 2010

The Jakarta Post

President Susilo Bambang Yudhoyono is upbeat that economic growth will continue, based on increasing domestic consumption, international trade and new investment.

In the 2011 draft state budget unveiled by the President in the annual state of the nation address to a joint plenary session of House of Representatives and Regional Representative Council on Monday, Yudhoyono said that economy growth would further accelerate to 6.3 percent next year from the projected 5.8 percent this year.

The government said it was also optimistic that the country would have healthy and sustainable growth after 2011.

The economy will further accelerate from 6.4-6.9 percent in 2012 to 6.7-7.4 percent in 2013 and 7-7.7 percent in 2014, according to government projections.

“Indonesia’s economy must grow higher to improve the people’s welfare. Accelerated economic growth would hopefully expand employment opportunities and reduce unemployment,” Yudhoyono said in his state address on the occasion of the 65th anniversary of Indonesian Independence.

Current major Indonesian economic indicators such as balance of payments, exchange values and the low inflation rate have been encouraging.

According to the government, the country’s balance of payments had improved with foreign exchange reserves reaching more than US$78 billion — equivalent to 6.6 months of imports — as of the end of July.

This trend will further improve in the coming years, according to the President.

“The rupiah will remain stable throughout the year and is expected to trade at Rp 9,000-Rp 9,200 per dollar,” Yudhoyono said.

Indonesia was now one level below investment grade as shown by an increase in its credit rating from stable to positive according to international rating agencies, he added.

In the first half of 2010, GDP growth accelerated and might reach 6 percent in the second half. “Economic growth is expected to reach 6 percent in 2010, higher than a 5.8 percent, as predicted earlier,” Yudhoyono said.

In the 2011 state budget, the government said it expected to raise revenues of Rp 1,086.4 trillion ($120.60 billion), an increase of 9.5 percent from this year’s budget, while spending is expected to increase to 1,202 trillion, a 6.7 percent growth from this year.

Yudhoyono said that the government would reduce the budget deficit this year to Rp 115.7 trillion in 2011, or 1.7 percent of the GDP, from 133.7 trillion or 2 percent of GDP.

Finance Minister Agus Martowardojo said Monday that the government initially predicted a 6.1-6.4 percent GDP growth target in 2011.

“We are convinced that GDP growth will reach 6.3 percent,” he said, adding that the target could be achieved if the government can maintain sound and efficient budget management.

“We have to maintain our state deficit at less than 3 percent. We are targeting a 1.7 percent deficit worth Rp 115.7 trillion in 2011. It is still far lower than 3 percent. We have never had a deficit more than 3 percent,” Agus said.

The finance minister said that although Indonesia would continue to reduce its foreign debts and maintain a relatively low budget deficit.

The government plans to reduce the country’s loan-to-GDP ratio to 26 percent at the end of 2011 from 27.8 percent in the same period last year.

Coordinating Economic Minister Hatta Rajasa said the government’s macroeconomic targets in 2011 were realistic and achievable.

“I have heard many analysts say that we actually can achieve a higher economic growth. It is more important to keep economic growth to a realistic and achievable figure,” he said, adding that to achieve the growth target, the government would work to develop infrastructure, such as road, ports and power plants.

In his address, Yudhoyono said the government would put more effort on infrastructure development in the coming years.

A number of efforts such as the improvement of the legal certainty in the development of infrastructure facilities were underway. The government had identified and tried to resolve various bottlenecks impeding the country’s infrastructure development, including laws on land-use and spatial arrangement, he added.

“We are revising infrastructure-related-laws to improve investment climate,” he said.

Infrastructure is one of prioritized sectors in the second medium-term national development plan, a development guide for the 2010-2014 period.

In 2011, the government will develop a number of major infrastructure projects to accelerate economic growth.

The projects will include construction of flyovers and underpasses with a combined length of 4,551 kilometers, the installation of new railroad tracks comprising a double track railway with a length of 85.06 kilometers and railway tracks extending to 126.12 kilometers, the expansion and rehabilitation of 118 airports and the construction of 14 new airports.

The government also said it planned to install 1,558 kilometers of electricity transmission lines and build a 1,280 megavolt-ampere (MVA) electrical relay station.

New housing will be built for 1,500 less-developed and isolated villages located on small islands, the government said.

The government also vowed to build eight dams and finalize the construction of 34 water catchments, as well as completing the rehabilitation of two dams.