Chinese President Hu Jintao recently reaffirmed his country's determination to promote the domestic economy while keeping the external accounts balanced. This kind of strong statement is greatly needed amid the uncertainty arising from the financial crisis that is expected to lead to a global recession.

Asian countries will certainly be affected by the global downturn. Exporting companies in the region are already feeling the pinch from the imminent global recession. The only way for the countries in the region to mitigate the impact is through the promotion of the domestic economy.

Concerted efforts by Asian countries will create a region where economic activities can be decoupled from the global downturn, but at the same time will also lead into higher import demands from the rest of the world. The strong reserves of the region, which have been accumulated over many years, can now be mobilized to increase the financing of the imports badly needed to strengthen the domestic economy.

Indonesia has the advantage of being rich in natural resources. A country with a population of 225 million people and with a rising per-capita income can form a strong domestic economy. So how strong is the Indonesian domestic economy?

In 2008, the country may reach a per-capita income of between $2,300 and $2,400 depending in the GDP in the fourth quarter. Up to September, the Indonesian economy seemed to be doing well. Reports from various companies indicate that many of them exceeded their production or revenue targets.

Bank Indonesia recently predicted that the third quarter GDP may have grown by 6.3 percent, slightly higher than their first and second quarter predictions. If this proves accurate, then in the first three quarters of this year the Indonesian GDP produced a growth rate of over 6.3 percent compared to the same period last year. Therefore, a slightly less impressive growth rate in the fourth quarter will probably still lead to over 6.0 percent growth, year-on-year, during the whole of 2008. Despite the recent problems this positive outcome is now widely predicted.

Indonesia is also experiencing growth in the size of the middle class. Based on the distribution of income, 22.5 million people -- almost the same as the whole population of Malaysia -- earned an average of $7,000 in 2008 -- higher than the 2006 average per-capita income of Malaysia. Another 22.5 million people earned an average of $3,500, while 22.5 million people earn around $2,300.

In total, 67.5 million people -- slightly more than the entire population of Thailand -- earned an average income of $3,700, slightly higher than Thailand's 2006 average per capita income.

While some people have been badly affected by the financial crisis, such as by losing their accumulated wealth via the now bankrupt Lehman Brothers or losing the value of their stocks, their recurrent income will continue to rise if the economy continues to post positive growth. Therefore, ensuring continued growth in the economy is an urgent task for the government, which can be facilitated by the promotion of the domestic economy.

In 2009, the new Indonesian income tax law will release around Rp 40 trillion for companies and individuals through tax reforms and liberalization. This total estimated reduction in the tax burden represents one form of fiscal stimulus that can be spent on further expansion or on consumer spending.

In the meantime, the decision to accelerate project implementation, for example for infrastructure projects, will create broader activities that can stimulate employment. A number of projects, such as the MRT in Jakarta, the East Flood Drain (BKT) and the construction of toll roads in various places, as well as other government development projects will start in 2009.

It is hoped that fast implementation of such projects can be done on the same lines as the rapid construction of the Cengkareng Airport toll road that is currently being built at a brisk pace.

The declining oil price in the recent weeks may also help the implementation of fiscal stimulus.

This means a lower requirement for fuel subsidies as well as helping to make available more fuel supplies for the government. Funds saved from energy subsidies can be pooled to finance the development of infrastructure projects such as highways as well as production of non fossil fuel (or renewable) energy.

If the oil price continue to fall, then there is a one time chance for the government to start considering the collection of a carbon tax.

For example, currently the subsidized gasoline price was set at Rp. 6.000. If the oil price continues to decline, the value of "subsidized" gasoline could reach a level of Rp. 5,000. If the price continues to be fixed at Rp. 6,000, the government could start collecting revenue of Rp. 1,000 for each liter of "subsidized" gasoline.

This temporary revenue could be set as a carbon tax. If the oil price continued to decline even further, then for example, the "subsidized" value could reach Rp. 4,000 per liter, then the Government could decide to reduce the official price or leave it as an additional revenue on top of the carbon tax.

On the other hand, if the value of the "subsidized" gasoline increases to Rp. 6,000 (while the proposed carbon tax is set at Rp. 1,000) then the Government starts subsidizing the gasoline as planned, while at the same time the carbon tax continues to be collected at Rp. 1,000 per liter.

Time is running out fast to make use of this "roller coaster" oil price. Therefore the government has to stand ready to take advantage of such conditions. With such an instrument, the promotion of the domestic economy can be made more effective.

The writer is rector of ABFII Perbanas. He can be reached at charinowo2002@yahoo.com

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