T

he Finance Ministry has prepared contingency measures in the newly approved 2015 state budget to anticipate future shocks, including one that may emerge from the planned increase of the US interest rate.

Article 19 in the state budget stipulates that if the budget suffers from a deficit that exceeds the benchmark, the government may access funds from either the accumulated budget surplus (SAL), existing standby credit facilities, or increase revenue by issuing government bonds.

'€œIf the state'€™s revenue target is not met, the government may face a higher deficit than what was expected,'€ Robert Pakpahan, the director general of the Finance Ministry'€™s debt management office, announced on Monday, following the approval of the state budget at a plenary meeting at the House of Representatives.

If that is the case, Robert added, the government would be allowed to finance a reduction in the deficit through any of the three mechanisms listed under Article 19.

The law sets the fiscal deficit at 2.21 percent, equal to Rp 245.9 trillion (US$20.29 billion) of the gross domestic product (GDP), down from the 2.32 percent that was proposed in the draft of the state budget.

Data from the ministry showed that the SAL figure stood at Rp 66.59 trillion in December 2013, while the amount of existing standby credit stood at $5 billion.

'€œWe have $2 billion from the World Bank, $500 million from the ADB [Asian Development Bank], $1.5 billion from the JBIC [Japan Bank for International Cooperation] and $1 billion from the Australian government,'€ he said.

Budget flexibility has been deemed necessary, as Indonesia '€” like the rest of the world'€™s emerging economies '€” awaits news from the US Federal Reserve regarding the planned increase of the its interest rate.

As reported by Bloomberg, Federal Reserve officials have raised their median estimate of the rate to 1.37 percent at the end of 2015, up from the current 0.25 percent. The rate would then continue to increase, reaching 3.75 percent by the end of 2017.

Analysts have predicted that a higher rate would prompt capital outflow from emerging markets to the US, leaving Indonesia with tighter liquidity in 2015.

Finance Minister Chatib Basri said that fiscal room for the incoming administration had also been provided through the allocation of direct cash assistance (BLSM), with as much as Rp 5 trillion having been designated BLSM funds in the 2015 state budget. Combined with the existing BLSM funds from the 2014 revised state budget, the new government will have a total of Rp 10 trillion.

'€œIt'€™s like a blank check that the new administration can use, as the Rp 10 trillion funds are already guaranteed. [Also] the government will be able to raise the price of subsidized fuel without House approval,'€ he said.

The BLSM is essentially a built-in means of mitigating the impact of the subsidized-fuel price hike on the poor. President-elect Joko '€œJokowi'€ Widodo has hinted that he would proceed with the planned price hike as early as November.

The Monday plenary meeting also saw the government and the House approve macroeconomics assumptions for 2015, setting the expected growth rate at 5.8 percent and the inflation rate at 4.4 percent.

Meanwhile, the exchange rate was fixed at Rp 11,900 against the US dollar and the average interest rate for three-month government debt papers (SPN) was set at 6 percent.

The budget also sets the Indonesian Crude Prices (ICP) at $105 per barrel, the oil-lifting target at 900,000 barrels per day (bpd) and the gas-lifting target at 1.25 million barrels of oil equivalent per day (boepd).

Bank Central Asia (BCA) chief economist David Sumual said that the Jokowi administration might revise the budget as early as January, tailoring the calculations to its own development programs. He also said that he was pessimistic that the 5.8 percent growth target was a sound estimate, citing global volatility.