Government to stick to budget plan despite criticism: Minister

The Jakarta Post , Jakarta | Fri, 08/24/2007 1:30 PM | Business

Urip Hudiono, The Jakarta Post, Jakarta

The government has acknowledged the concerns of the House of Representatives over its 2008 draft budget, and will address these concerns during budget deliberations.

However, the government remains optimistic its draft budget will be approved, Finance Minister Sri Mulyani Indrawati said Thursday during a House plenary session.

Responding to criticism from legislators that its growth target of 6.8 percent for 2008 was too optimistic, Sri Mulyani said the government based its estimate improving macroeconomic conditions in the country.

Growth is currently on an upward trend, reaching 6 percent in the first quarter of this year and 6.3 percent in the second quarter, she said.

Other macroeconomic indicators are also improving, the minister said, particularly inflation which has eased of late.

""We still see the economy being able to continue picking up ahead on consumption, more exports and better investments,"" Sri Mulyani said, delivering the government's response to the preliminary opinions on the budget bill delivered by the House factions earlier this week.

""Growth based mostly on consumption should not be interpreted negatively either, as it shows a recovery in the public's purchasing power, which will in turn help spur production in the real sector,"" the minister said.

The government is also upbeat it can raise the estimated Rp 1,296 trillion (US$144 billion) in investment needed to support next year's growth, she said, as it is working to improve the investment and business climate.

Lawmakers also said they were concerned next year's projected higher growth would make the 6 percent inflation target impossible to achieve.

Sri Mulyani said current conditions in Indonesia made it unlikely that an increase in economic activities would cause consumer prices to experience a dramatic rise.

""Our economy is not yet fully employed, meaning there is still excess production from the supply-side which will be able to meet increases in demand,"" Sri Mulyani said.

""Inflation in Indonesia has mostly followed a cyclic trend on the prices of volatile goods such as food, while the government has been able to keep administered prices in check.""

She acknowledged the poor distribution of goods in the country still posed an inflationary risk, as well as excess liquidity, which the government will address with Bank Indonesia.

The minister said the expansive nature of next year's proposed budget would maintain fiscal prudence, with extra spending to be optimized for infrastructure development and the deficit financed cautiously with bonds.

The government has proposed Rp 836.4 trillion in spending and Rp 761.4 trillion in revenue for the 2008 draft budget, running up a wider deficit of Rp 75 trillion, or 1.7 percent of gross domestic product.

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