RI finances to close the year on solid ground

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia's finances are expected to wrap up the year in good shape, with the current account in surplus and the budget deficit ending up within a slightly lower-than-expected range of between 1 and 1.1 percent of gross domestic product.

This was due to the likelihood of growth continuing to pick up during 2006's final quarter, said Finance Minister Sri Mulyani Indrawati, and was despite the recent weakening of the U.S. dollar, which could affect Indonesian exports.

"We are comfortable so far with the budget deficit. There are no problems at all. We see the deficit at between 1 and 1.1 percent," she told reporters Wednesday.

"The recent movements in the dollar are, from the budgetary perspective, also manageable."

In its 2006 mid-year budget revisions, the government targeted a budget deficit of Rp 39.9 trillion (US$4.4 billion), or 1.3 percent of GDP.

Sri Mulyani admitted that a number of problems had affected this year's budget revenues and expenditures, but said that the budget was well on track in the final quarter.

"There will be some envisaged spending that won't now take place. But that's better than spending the money just for the sake of spending it," she said.

"We're optimistic about income-tax revenues, as well as value-added-tax revenues on domestically produced goods, although revenues from VAT on imported goods may decline a bit."

Tax revenues -- at Rp 425 trillion -- make up the bulk of this year's total Rp 659 trillion in budget receipts.

Mulyani explained that revenues from VAT on imported goods would possibly miss their target due to the economic slowdown in the first part of the year, and the shifting of growth from the manufacturing sector to such other sectors as services, trade and agriculture -- which contained less imported components.

She was upbeat, however, that Indonesia's economic growth would continue to pick up speed, thus leading also to increased government revenues.

Growth rebounded to a revised 5.1 percent and 5.5 percent in 2006's second and third quarters, respectively, from 4.6 percent in the first. It is expected to come in at a full-year rate of about 5.8 percent -- slightly better than the 5.6 percent recorded in 2005 -- and further increase to 6.3 percent in 2007.

"We'll watch how the momentum of growth plays out, and if we can maintain the upward trend, then revenues will also improve next year," Mulyani said.

Meanwhile, concerning possible adverse impacts on Indonesia's finances from the recent weakening of the U.S. dollar against the rupiah, Mulyani suggested that all exporters, importers and real-sector players should carefully recalculate their business-plan costs.

The dollar has come under pressure as a result of the U.S.'s twin trade and current account deficits, resulting in a shift by investors from dollar-based assets.

A stronger rupiah makes Indonesia's exports less competitive and imports cheaper, thus affecting the country's trade and current account balances. However, it also serves to reduce the government's burden in servicing its foreign debt.

Data from the central bank shows Indonesia's current account surplus standing at $4 billion as of the third quarter.

Under the 2006 budget revisions, the government has assumed a rupiah exchange rate of Rp 9,300 per U.S. dollar. The rupiah was little changed at Rp 9,065 per dollar on Wednesday.
Jawawa.net: Indonesian Business and Investment News Aggregator