T

he government will revise the economic growth target and other key economic assumptions in the 2013 state budget amid changes in the economic outlook due to the slower than expected growth in exports and investment.

Acting finance minister Hatta Rajasa said on Tuesday in Jakarta that the government would cut the economic growth target to 6.3 percent or 6.4 percent from the present 6.8 percent due to the prolonged crisis in the global economy.

'€œWe must lower the target as we need to be realistic about the present realities affected by the continuing economic slowdown,'€ Hatta, who is also the coordinating economic minister, told reporters at his office.

 Apart from the economic growth target, the government also plans to change the oil lifting (net production) target to around 800,000 barrels per day (bpd) from the 900,000 bpd in the current budget. Indonesia'€™s economy grew at its slowest pace in more than two years to 6.02 percent in the first quarter of this year as consumer spending fell and investment shrank, the Central Statistics Agency reported on Monday.

Domestic consumer spending, which is the main driver of economic expansion in Southeast Asia'€™s biggest economy, grew 5.17 percent year-on-year in the first quarter of this year, while government spending rose only 0.42 percent in the same period. Exports dropped 6.4 percent to US$45.4 billion in the January-March period this year from a year earlier.

The government will likely submit a revision of the 2013 state budget to the House of Representatives for approval before the end of this month.

Latif Adam, an economist at the Indonesian Institute of Sciences, said that the economic growth target cut was necessary as it would be very difficult for the government to reach its initial target.

'€œThe changes will be more realistic and will better reflect the ongoing dynamism of our economy at the moment,'€ he said. Latif further said that the main factor dragging economic growth was inflation as it curbed domestic consumption and investment growth.

Foreign direct investment in Indonesia relies heavily on imports of capital goods, raw materials and intermediate goods to support business operations. When inflation causes the local currency to depreciate, it shores up import costs, which can slow investment.

According to a scenario set by the institute, the attainable target for growth will range between 6.2 percent and 6.4 percent, while inflation may hover between 5.5 percent and 6 percent, partly due to surging goods prices triggered by the planned fuel subsidy cut.

 Ahmad Erani Yustika, an economist at the Institute for Development of Economic and Finance, offered a more moderate view of the country'€™s economic growth, saying that with the latest developments, Indonesia'€™s economy might only grow by 6.2 percent at the most this year.

He said that one of the main factors was slowing exports amid weak demand in overseas markets. '€œWhile other efforts such as boosting exports and reducing imports will require extra effort, the easiest thing that the government could do is to take the necessary measures to control the situation by disbursing its spending according to the planned schedule,'€ he told the Jakarta Post.