Despite higher oil prices, economy makes soft landing

The Jakarta Post, Jakarta

Despite the surge in oil prices and lower government spending, the Indonesian economy has managed to make a soft landing this year, with an improvement in most of the country's economic indicators.

Finance Minister Sri Mulyani Indrawati said here Saturday that the economy in general had been encouraging throughout 2007, with most of the government's targets being met.

The minister said that the growth of the country's gross domestic product hit the government's annual target of 6.3 percent during the first nine months of this year and was unlikely to go down by the end of the year.

The country's inflation rate, she said, was expected to close the year at 6.4 percent, below the government's target of 6.5 percent. In 2006, the inflation rate was about 6.6 percent.

According to the Central Statistics Agency (BPS), the inflation rate grew modestly to 5.3 percent during the January to November period, although the year-on-year rate was still higher at 6.71 percent.

The minister said that the central bank's benchmark rate had dropped to 8 percent, a little higher than the government's target of 7.5 percent, but significant enough to encourage more lending from the commercial banks.

Sri Mulyani said that with the better monetary situation, the average rate of the rupiah against the U.S. dollar could be maintained at a realistic level of Rp 9,130, almost the same as the government's target of 9,125 per dollar.

Speaking during the ministry's year-end press conference, Sri Mulyani said that the country's economic growth was still driven mainly by private consumption, investment and exports.

The minister said that total exports were expected to reach US$112 billion by the year's end, an increase of about 10 percent from $101 billion in 2006.

However, export growth is still lower than the government's target of 15 percent.

Meanwhile, the total of foreign and domestic investment this year is likely to exceed the government's expectation of Rp 109.7 trillion.

"But the government needs to address some issues hampering the investment climate and to improve the competitiveness in exports," said Mulyani.

Speaking on the government's budget performance, the minister said that the budget deficit this year was estimated to be 1.2 percent of the country's GDP, lower than the earlier estimate of 1.5 percent.

Sri Mulyani said that the budget deficit would be Rp 46.9 trillion (US$4.99 billion), lower than Rp 58.3 trillion estimated in the revised state budget.

In November, the Finance Ministry estimated that the budget shortfall would increase by about Rp 14 trillion to Rp 72.2 trillion due to the rise in the fuel subsidy and other related spending as a result of higher oil prices.

"However, the deficit will somehow be lower smaller than the estimate because the government's spending is below the target," she added.

Lower spending may hamper Indonesia's economy, which needs infrastructure development to sustain the fastest growth rate since 1996.

The government plans to boost spending on public works by 41 percent next year to Rp 35.6 trillion ($3.8 billion), building and repairing roads on eight of the nation's biggest islands. (adt)
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