Govt readies stimulus to spur growth

The government is scaling back its annual economic growth targets and drafting a stimulus plan to sustain exports and the rupiah against slowing demand and the flight of foreign funds.

Finance Minister Agus Martowardojo told reporters on Friday that the sovereign debt crises in the eurozone had already had a considerable effect on the local economy.

“We can see that the situation has begun to affect our trade balance. We are definitely preparing ourselves to manage the situation so that our second, third and fourth quarter economic growth will be enough to reach 6.5 percent economic growth as we planned,” Agus said.

The finance minister also had a caveat: “However, if the global situation continues to stand as it is now, our actual economic growth could be between 0.1 percent and 0.2 percent lower than predicted.”

Declining exports and faster import growth have become the government’s number one concern, Agus said.

The Central Statistics Agency (BPS) reported last week that Indonesia’s trade balance plunged into red in April for the first time in nearly two years due to an unexpected drop in exports.

The agency said that the nation’s trade deficit was US$641.1 million in April after it recorded a surplus of $920 million in January, $692.8 million in February and $840 million in March.

Agus said the government would offset pressure from weak exports by strengthening the domestic economy through an economic stimulus to boost consumption and create incentives to lure investments.

Household consumption and investment are the nation’s largest economic drivers, contributing 54.6 percent to GDP last year, while exports accounted for 32 percent.

“We are planning to increase the non-taxable income level to Rp 24 million [a year]. This will push domestic economy,” he said. The level is currently set at Rp 15.8 million.

Agus also said that the stimulus would cover accelerated infrastructure financing, although adding that the government had yet to establish a sufficient regulatory framework to accelerate infrastructure development.

“To finish the [regulations] will take time. As of now, we are preparing a tax holiday and tax allowance incentives that we hope will compensate for the slow development in other sectors,” Agus said.

Contacted separately, Institute for Development of Economics and Finance (INDEF) economist Ahmad Erani Yustika said that he was not surprised with Agus’ revised outlook for 2012.

 “From the beginning of this year, we have predicted that the economy would only grow between 6.1 percent and 6.3 percent,” Ahmad told The Jakarta Post over the telephone.

Reliance on consumption alone would not be enough for the nation to weather the economic crisis, Ahmad said, calling on the government to promulgate regulations to improve the business climate to lure investments and to accelerate infrastructure development.

Meanwhile, Standard Chartered economist Fauzi Ichsan said the government had to focus on implementing its master plan for the acceleration and expansion of Indonesia`s economy (MP3EI) program in order in response to the economic turmoil.

The MP3EI is aimed at developing 22 principal economic activities along six corridors throughout the archipelago: Sumatra, Java, Kalimantan, Sulawesi, Bali–Nusa Tenggara and Papua–Maluku.

Under the program, the government plans to launch 84 public-private partnership projects worth Rp 536.3 trillion this year.