The government submitted its 2012 economic prognosis to the House of Representatives on Friday with an optimistic outlook despite concerns over the country’s high inflation.
The country’s economy is forecast to grow by between 6.5 percent and 6.9 percent next year versus 6.4 percent projected this year and 6.1 percent last year, Finance Minister Agus Martowardojo told a plenary session during his presentation of the economic prognosis.
“To reach the economic growth expansion and acceleration targets, we will first push growth in [outer] regions through the development of economic corridors.
“Second, we will boost infrastructure development to support interregional connectivity and third, push for more rapid development in Papua and West Papua,” Agus said after the plenary session.
The government has laid out an ambitious 2011-2025 master plan to become one of the world’s 10 largest economies, covering six economic corridors in different regions in the archipelago and requiring hundreds of billions of dollars in investment.
The government is optimistic its monetary policy, which would be adopted to achieve the higher economic target, would not cause overheating in the economy as there would be an increase in supply, especially of food products.
The government estimates inflation would decrease to between 3.5 percent and 5.5 percent next year compared to its 5.3 percent target this year.
However, Agus acknowledged that surging inflationary pressure would remain among the major
obstacles to achieving the 2012 targets.
“The challenges to meet the 2012 targets include an unbalanced global economic recovery, the continuing eurozone crisis, global currency wars and surging global crude oil prices, which would affect soaring inflation.”
Despite an upward trend in global oil prices, the government was comfortable with its US$75 to $95 dollar per barrel target for Indonesia Crude Prices (ICP) next year compared with $80 this year, while it forecast oil lifting to remain steady at between 950,000 and 970,000 barrels per day.
The government is pessimistic on the rupiah exchange rate, forecasting it to trade at an average of between Rp 9,000 to Rp 9,300 to the dollar during the year.
The rupiah, one of Asia’s best performing currencies so far this year, has gained 5 percent year-to-date, touching seven-year highs of Rp 8,500 recently.
This year’s budget deficit would probably exceed the government’s assumption of 1.8 percent of GDP due to higher-than-expected crude oil prices, the Finance Ministry said in its budget report.
The ministry based its 2011 estimate on crude price assumption of $80 a barrel, and oil would probably trade at an average $90 to $100 a barrel this year, the report, released Friday, said.
Surging crude oil and commodity prices are threatening budgets in Asia. India may be forced to increase spending on subsidies, thwarting the government’s goal of cutting the budget deficit to a four-year low, central bank governor Duvvuri Subbarao said yesterday.
“Rising oil prices will put pressure on the budget this year, but it won’t be significant because the rupiah is stronger and government spending is still slow,” Eric Alexander Sugandi, a Jakarta-based economist at Standard Chartered Plc., told Bloomberg.