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he government remains optimistic that economic growth will reach 5.5 percent, within its target range, despite its plan to cut the state budget by about Rp 100 trillion (US$8.7 billion) as part of measures to cope with the surging cost of the fuel subsidy.

Deputy Finance Minister Bambang Brodjonegoro said in Jakarta on Friday that economic growth would reach the government'€™s target of between 5.3 percent and 5.5 percent this year, despite the cuts in spending in the 2014 state budget.

He said with high consumer spending, increased exports as well as direct investment, the growth target was quite achievable.

With its stable geopolitical situation, Indonesia has the opportunity to attract more foreign investors. '€œAs Thailand is experiencing a recession, foreign investors could relocate their business to Indonesia,'€ he was quoted as saying by kompas.com.

Besides Thailand, the worsening relations between China and Japan could also be seen as an opportunity, Bambang said, adding that he expected that many Japanese investors who usually go to China might switch to Indonesia.

Bambang was also optimistic that the mineral-export policy that would soon be issued by the government could help boost Indonesian economic growth to reach 5.5 percent this year. The country'€™s gross domestic product (GDP) grew by an annualized 5.2 percent in the first quarter of 2014, the slowest pace in five years as the government ban on the export of unprocessed minerals imposed at the beginning of January hurt the mining sector

The government earlier this week cut the state budget by Rp 100 trillion. The Public Works Ministry saw its budget slashed by Rp 22.7 trillion from its previous Rp 84.1 trillion followed by the Defense Ministry, which was cut by Rp 10.5 trillion, and the Transportation Ministry, which was cut by Rp 10.1 trillion.

The retrenchment is an attempt to ease the government'€™s financial burden due to the sharp increase in the fuel subsidy. According to the government, spending on the fuel subsidy is expected to soar to Rp 285 trillion by the end of this year, Rp 74.3 trillion higher than the original allocation due to the sharp depreciation of the rupiah. A weaker rupiah increases the cost of fuel imports.

Meanwhile, Bank Indonesia (BI) governor Agus Martowardojo said on Friday that to keep the fiscal deficit in check the government only had two options. The first was to cut the budget, while the other was to reduce the fuel subsidy.

'€œIt is difficult to increase state revenues. On the other hand, increasing debt is not a good option either. The best possible option is to cut the budget or reduce the fuel subsidy,'€ he said, adding that the government cut the budget in order to keep the budget deficit below 3 percent of GDP.

 '€œIf the government is not able to reduce its spending by up to Rp 100 trillion, then they have to think up another option to reduce the deficit,'€ he said.

Although the two options could potentially disrupt economic growth, BI still predicted Indonesian economic growth of 5.1 to 5.5 percent this year, Agus said. (ask)