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JAKARTA - Indonesia's budget deficit will fall by almost a third, President Megawati Soekarnoputri said, as the fastest economic growth in nine years boosts revenue. The government's deficit next year will probably be 16.9 trillion rupiah ($1.83 billion), or 0.8 percent of gross domestic product, Megawati said in a speech to parliament to present the 2005 draft budget. That is 31 percent less than the 24.4 trillion rupiah projected for this year.
Megawati promised to slash the deficit and raise fuel subsidies to counter record oil prices as she fights to retain power in a Sept. 20 election against former Security Minister Susilo Bambang Yudhoyono. Later today, the government may report second- quarter economic growth of 4.7 percent, the fastest pace in a year, an economist survey shows.
``This reflects the government's commitment to continue fiscal consolidation,'' said Megawati, who became Indonesia's fifth president in July 2001. The government, which has had deficits since 1998, wants to narrow the shortfall to 0.1 percent in 2006. ``The deficit next year will be manageable,'' said Fauzi Ichsan, Indonesia economist at Standard Chartered Bank in Jakarta, speaking before Megawati presented the budget. Any pressure on finances will be offset by ``the government slashing or postponing infrastructure spending, and from revenue from asset sales and taxes.''
The $208 billion Indonesian economy will probably grow 5.4 percent next year, Megawati said, faster than an estimated 4.8 percent this year. The July 5 presidential election helped narrow the field from five to two. The end of the election process may further bolster investor confidence and lead to more foreign investment, Ichsan and other economists said.
Subsidies mount
Still, Indonesia will have to spend 26.3 percent more on subsidies next year, or 33.6 trillion rupiah, as oil prices rise, Megawati said. Megawati's government says it will spend 21 trillion rupiah on fuel subsidies, higher than the 14.5 trillion rupiah budgeted this year. Oil prices have surged 51 percent from a year ago. The key Jakarta Composite index fell 0.2 percent as of 10:30 a.m. in Jakarta.
Government planners are in the midst of revising the 2004 budget as a result of higher oil prices and a weaker rupiah. Jakarta may have to spend 46 trillion rupiah on fuel subsidies, about three times its previous estimate, Coordinating Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti said in July.
Southeast Asia's biggest oil producer, which imports about a fifth of its oil needs, began cutting fuel and electricity subsidies after the 1997-98 financial crisis as part of an agreement with the International Monetary Fund, which organized a $36 billion economic rescue program. In March, Indonesia kept its retail fuel prices for consumers and industries unchanged, while raising prices for fuel oil and high- octane gasoline.
Oil prices
The government anticipates oil prices could fetch $24 a barrel next year and domestic oil production will decline to 1.125 million barrels a day, from an average 1.15 million barrels a day this year. The forecast is similar to the assumptions in the preliminary budget documents released in June. Crude oil for September delivery rose as much as 27 cents, or 0.6 percent, to $46.85 a barrel in after-hours electronic trading on the New York Mercantile Exchange.
The $208 billion economy is counting on consumer spending, which accounts for 70 percent of gross domestic product, and exports, to boost growth. The lowest interest rates in six years have spurred consumption, helping companies like PT Astra International sell more vehicles. ``The growth target is still below Indonesia's economic potential, and not yet enough to reduce unemployment and poverty,'' said Megawati.
Lagging its neighbors
A new administration, scheduled to be in place in October, will inherit the task of reviving an economy that is yet to regain its size before the 1997-98 crisis. The government forecasts this year's growth will be 4.8 percent. Next door, Singapore's economy may grow as much as 9 percent this year, its government says. Malaysia's economy may grow as much as 6.5 percent, its central bank has said.
The 57-year-old incumbent president and her rival Yudhoyono, 54, have five weeks to convince voters they can deliver the jobs, economic growth and security that were the central themes of the campaign. There are 40 million people unemployed or working a few hours a week, the World Bank said. Today's budget forecasts that the rupiah is likely to trade at an average 8,600 against the dollar next year, matching the level assumed for this year. The rupiah traded at 9,262 as of 9:53 a.m. in Jakarta, sliding 9.1 percent this year, the worst performer among 15 Asia-Pacific currencies tracked by Bloomberg data.
Indonesia expects inflation to average 5.5 percent next year, slower than this year's 7 percent pace, Megawati said. The government had earlier forecast inflation will average 6.5 percent this year. The central bank estimates inflation of 6 percent to 7 percent in the next five years. The yield on the benchmark three-month central bank bills will fetch an average 6.5 percent next year from a revised 7.6 percent this year, according to Megawati. The one-month bills fetched 7.37 percent in Jakarta.
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