Indonesia will opt for a “more realistic” economic growth target for the next fiscal year as the country prepares for a prolonged economic crisis in the eurozone and its consequent impact on trade and investment, says deputy Finance minister Mahendra Siregar.
Mahendra, who also serves as Indonesia’s G20 sherpa, said that regardless of the progress made by European policy makers, Indonesia would have to assume that the crisis in the bloc of 27 economies would persist.
“We need to make an assumption that the crisis in that region is long term so that we can avoid being trapped in the uncertainties of European economic development,” Mahendra told reporters.
He said that based on ongoing discussions with the House of Representatives, the government was likely to set a 6.8 percent economic growth level in the 2013 state budget.
“The initial target was set between 6.8 percent and 7.2 percent. But by looking at the current developments [in Europe] we believe it will be more realistic to target the lower limit of 6.8 percent of growth,” Mahendra said.
This year the government has targeted 6.5 percent economic growth, well over the forecast of the International Monetary Fund, which was 6.1 percent.
Assuming that the Europe-led global economic crisis will persist, the World Bank has revised down its annual economic growth forecast for Indonesia from 6.2 percent to 6 percent. The development agency also calculates a 6.4 percent economic growth rate for Indonesia next year.
The World Bank said that the government should immediately redirect its spending to capital and social expenditures, instead of “unproductive” fuel subsidies, to support the economy and protect the poor in the event of a crisis.
Despite the lower growth prediction, World Bank managing director Sri Mulayani Indrawati said during her visit to Jakarta late last month that Indonesia’s economic performance was a “luxury” compared to other global economies.
Mahendra said investment and strong domestic consumption would remain the main drivers of growth next year, with household consumption expected to grow between 4.8 percent and 5.2 percent.
The single biggest spender, the government, plans to raise its expenditures by between 6.7 percent and 7.1 percent next year, Mahendra said.
The Investment Coordinating Board (BKPM) says that investment will reach Rp 390.3 trillion in 2013, up from Rp 290 trillion expected for this year.
Foreign direct investment (FDI) reached an all-time high in the second quarter of this year at Rp 56.1 trillion, up by 30.2 percent from Rp 39.5 trillion in the same period last year. FDI made up 70 percent of the total realised investment in the country for the given period, which stood at Rp 79.6 trillion.
BKPM investment monitoring deputy Azhar Lubis said on Friday that high investment growth would compensate for a weak trade performance and three consecutive months of trade deficits.
The deficit stood at $1.33 billion in June, the widest in five years according to the BPS.