Govt revises economic growth, budget assumptions

Desy Nurhayati and Aditya Suharmoko , The Jakarta Post , Jakarta | Sat, 02/16/2008 12:42 PM | Business

President Susilo Bambang Yudhoyono announced Friday the government would revise down its economic growth target for this year, in a move he said was necessary "to protect the country" amid surging global oil prices and an adverse global economy.

Yudhoyono said the government would revise its economic growth expectation down from 6.8 percent to 6.4 percent in the 2008 budget revision, in line with the global economic slowdown.

The government also revised several key assumptions in the 2008 state budget, including the assumption on oil prices.

"Should the government insist on maintaining the 2008 state budget, the country's economy may collapse," Yudhoyono told reporters at the State Palace.

According to Yudhoyono, global oil prices, which currently hover at or above US$90 per barrel, could cause the government's subsidies for oil-based fuel and electricity to rise to Rp 250 trillion ($27.21 billion) and, in turn, reduce other subsidies, such as those on key commodities, health and education.

The prices of key commodities, such as flour, wheat and soybeans, have risen significantly and need to be stabilized for the people's sake, the President said.

The government recently lifted the import duty on soybeans and eliminated the value added tax on wheat, flour and cooking oil to help reduce the price of the commodities. All these steps will create a huge potential loss to the state budget.

"It is not possible to keep economic growth (at 6.8 percent). Almost every country in the world has revised economic growth down," he said.

In its budget revision, the government assumes the country's inflation rate at 6.5 percent, higher than the 6 percent stated in the original budget.

The central bank's interest rate is projected at 7.5 percent, 50 basis points lower than the current rate of 8 percent. The rupiah is set at Rp 9,100 against the U.S. dollar.

The government also estimates the price of oil at $83 per barrel, from $60 per barrel in the original budget. Oil production is projected to decline from 1.034 million barrels per day to 910,000 barrels.

Head of fiscal policy at the Finance Ministry, Anggito Abimanyu, said the government had to revise the state budget after considering several crucial factors, such as the global economic slowdown and the surge in global oil prices and the prices of key commodities.

"All those factors affect the assumptions in the 2008 state budget. If we maintain the state budget in the current state, the country's deficit will increase dramatically," he said.

Under the new budget assumptions, the government projects the deficit at about 2 percent, higher than the 1.7 percent stated earlier.

The government expects to deliver the new budget assumptions to the House of Representatives for endorsement early next week.

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