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Jakarta to cut 2008 growth forecast on downside risks

(TOKYO) Indonesia will cut this year’s growth forecast amid greater ‘downside’ risks stemming from record oil prices and a global economic slowdown, Finance Minister Sri Mulyani Indrawati said.

South-east Asia’s largest economy is expected to grow between 6.4 per cent and 6.5 per cent in 2008, lower than the 6.8 per cent expansion predicted earlier this year, Ms Sri Mulyani said. ‘We are working on a new forecast taking into account the prospect of a global recession and the effect of higher commodity prices,’ she said on Saturday in an interview here. ‘Higher growth is becoming even more difficult.’

Indonesia’s non-oil export growth has dropped below 10 per cent four times in the past five months, less than half the 23 per cent average of the previous year. That may threaten tax revenue for President Susilo Bambang Yudhoyono’s government, which has increased subsidies on cooking oil and rice and will this year double spending to cap fuel prices.

‘If exports slow, that translates into negative growth,’ said Helmi Arman, an economist at PT Bahana Securities in Jakarta. ‘The wild card is domestic demand.’

Ms Sri Mulyani was in Tokyo to attend a meeting between finance ministers from the Group of Seven nations and their counterparts from China, Russia, South Korea and Indonesia.

‘We’re still very optimistic from the domestic side, but we’re looking at the export risks,’ she said. ‘Our deficit will be larger than originally planned’ because of food subsidies, in additional to money being spent to keep energy affordable to consumers.

Indonesia may spend 106.8 trillion rupiah (S$16.4 billion) this year in capping fuel prices, up from an earlier estimate of 45.8 trillion rupiah, while it may spend 44.2 trillion rupiah on keeping power costs below market rates, the Finance Ministry said in a proposal submitted to Parliament last month.

The government has also set aside 2.6 trillion rupiah to finance a plan to allow poor families to buy 15 kg of rice a month at subsidised prices, up from a 10 kg limit last year.

 

Source: Bloomberg (Business Times 11 Feb 08)

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