Indonesia Fin Min warns on 2008 growth, deficit
“If the oil price stubbornly stays at $100 a barrel, our budget deficit will increase to 75.9 trillion rupiah ($8.07 billion) - JAKARTA, Nov 27 - Indonesia’s economic growth is likely to fall short of the government’s 6.8 percent target for next year and the budget deficit may widen if oil prices hit $100 a barrel, the finance minister said on Tuesday.
Southeast Asia’s largest economy may expand by 6.4-6.7 percent next year, lower than the budget forecast of 6.8 percent, while the budget deficit may increase to 1.8 percent of GDP, from 1.3 percent this year, Finance Minister Sri Mulyani Indrawati told reporters.
But the government is sticking to its inflation forecast for next year of around 5 percent, despite the expected revision in other indicators.
“If the oil price stubbornly stays at $100 a barrel, our budget deficit will increase to 75.9 trillion rupiah ($8.07 billion) from an earlier estimate of 73.3 trillion — or 1.8 percent of GDP,” Indrawati told a news conference.
“Our economic growth might slow down to 6.4-6.7 percent,” she said, adding that the government’s growth target of 6.3 percent for 2007 is achievable.
Indonesia’s economy grew faster than expected in annual terms in the third quarter, and is on track for its fastest full-year expansion in 11 years, thanks to strong commodity exports and falling interest rates.
Indrawati said energy subsidies are estimated to reach 88.2 trillion rupiah this year, far higher than the 55.6 trillion rupiah allocated in the 2007 budget.
She said the government may issue 2.8 trillion rupiah ($298 million) more debt next year to help cover the higher budget deficit if the price of oil hits $100 a barrel or more.
The government plans net new bond issuance of 91.6 trillion rupiah next year.
Indonesia’s Chief Economic Minister Boediono said the government would take steps to help reduce the government’s fuel subsidy.
Rising global oil prices have caused the fuel subsidy bill in Indonesia, Asia Pacific’s only member of the Organisation of the Petroleum Exporting Countries , to balloon, with some officials warning it could hit 90 trillion rupiah this year if prices reach $100 a barrel.
Indonesia’s ageing wells and lack of investment in the energy sector have pushed the country to become a net crude oil importer, although it is still a net energy exporter, thanks to a huge supply of natural gas and coal.
Jakarta cut its high energy subsidies in October 2005, leading to a sharp increase in fuel prices, although these are still among the lowest in the world.
Price increases are a sensitive issue in Indonesia. In May 1998, a big rise in fuel prices triggered riots that helped to topple former President Suharto.
U.S. oil fell more than a dollar to $96.64 a barrel on Tuesday after trading as high as $99.11 a day earlier, on expectations OPEC may increase output to help stem a record rally that has sent prices near $100 a barrel.