[Kabar-indonesia] Upbeat Boediono Says Deficit Still Manageable [+FDI Update]

[JoyoNews at aol.com]

also: JP update: FDI up slightly in first five months 

The Jakarta Post
Wednesday, June 21, 2006

Upbeat Boediono says deficit still manageable 

The Jakarta Post, Jakarta

The 2006 budget deficit, which is expected to widen to 1.5 percent of gross 
domestic product from the originally planned 0.7 percent of GDP, will still be 
manageable and will not hurt the economy, Coordinating Minister for the 
Economy Boediono said Tuesday.

"I think we can still deal with the widening deficit," he told reporters. 

Boediono said the government would seek additional domestic and foreign 
funding to cover the higher deficit. 

Finance Minister Sri Mulyani Indrawati has recently said that the deficit 
this year will widen to between 1.3 and 1.5 percent of GDP due to the higher cost 
of covering the subvention paid to PLN, more spending on education, and 
unanticipated expenditure required for the rebuilding of quake-stricken areas of 
Yogyakarta and Central Java. One official had previously estimated that the cost 
of reconstruction could reach US$3.1 billion. 

The government is expected to meet with the House of Representatives budget 
commission soon to conduct the mid-year review of the 2006 budget so as to 
bring it into line with the changes that have taken place in domestic and 
international economic conditions. 

The country's traditional foreign donors, grouped in the Consultative Group 
on Indonesia (CGI), pledged at their annual meeting here on June 14 a total of 
$5.4 billion in new loans and grants for Indonesia, of which $3.9 billion 
would be used directly to cover the budget deficit. 

Antidebt activists have criticized the new loan offers. But the government 
has said it has no other choice than to resort to borrowing due to the widening 
deficit. 

On Monday, Sri Mulyani said that the government would also increase the value 
of its planned bond sales this year to a net Rp 38 trillion from the initial 
target of Rp 24.88 trillion. 

However, Boediono said that the government would not issue any additional 
sovereign bonds this year. 

"I've heard from the finance minister that we're not going to issue global 
bonds any more," he said. 

In March, the government issued $2 billion in bonds in the offshore market. 

Elsewhere, Boediono said that the widening deficit would not adversely affect 
the country's economic growth. 

He said that the government expected growth to reach up to 5.9 percent this 
year. 

The government initially projected that growth would reach 6.2 percent this 
year, but after the first quarter showed growth weakening to 4.6 percent 
on-year, the first slowdown since 2004, the growth forecast for this year was cut to 
between 5.7 and 5.9 percent. 

Meanwhile, the secretary of the State Ministry for State Enterprises, Said 
Didu, warned the government against trying to squeeze more money from 
state-owned enterprises to cover the budget deficit, arguing that this would only hold 
back the development of the SOEs. 

He said that the country's SOEs had already contributed a huge amount to the 
budget, providing almost 80 percent of the government's dividend revenue 
target for this year. 

Said stressed that what the government needed to do was to improve the 
investment climate at home so as to allow the SOEs to improve their performances, 
which in turn would increase the value of the dividends they paid into the state 
coffers. 

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The Jakarta Post
Wednesday, June 21, 2006

FDI up slightly in first five months 

The Jakarta Post, Jakarta

Actual foreign direct investment (FDI) in Indonesia rose by 5.1 percent 
during the first five months of the year compared to the same period last year, the 
Investment Coordinating Board (BKPM) reported Tuesday.

The board said that FDI increased to US$3.13 billion involving 377 projects 
between January and May this year from $2.98 billion involving 321 projects in 
the same period of 2005. 

According to the BKPM, which is tasked with licensing and promoting new 
projects, investment in the electronics, machinery and metal sector accounted for 
23 percent of the total FDI. 

The new projects provided jobs for 114,114 workers during the first five 
months of this year, up from 49,428 jobs in the same period last year. 

However, the value of newly approved FDI during the same period dropped to 
$3.66 billion from $5.47 billion previously. 

The government has been struggling hard to attract foreign investment to 
Indonesia so as to increase growth to between 6 and 7 percent per year and create 
enough new jobs to put a significant dent in the country's unemployment 
figures. An estimated more than 40 million people are fully unemployed or 
underemployed. 

The government announced a package of policies in February aimed at improving 
the investment climate. Last week, Coordinating Minister for the Economy 
Boediono reported on the progress made to date in the implementation of the policy 
package, with 23 of the 85 planned measures already in place or completed. 

The government is, however, struggling with regard to a number of crucial 
measures, including amending the labor legislation, reducing local taxes, and 
lowering charges in the telecommunications and transportation sectors. 

On Tuesday, Manpower Minister Erman was quoted as saying that the government 
would not proceed with its plans to overhaul the country's labor legislation 
following widespread protests from labor unions. Should such protests persist, 
this would further erode investor confidence. 

The decline in the value of newly approved FDI in the January-May period of 
this year suggests that foreign investors remain reluctant to put fresh money 
into Indonesia. 

Corruption, red-tape and convoluted bureaucracy, and woefully deficient 
infrastructure are the biggest obstacles to increased foreign investment, which 
reached a peak of $39.66 billion in 1995. 

The BKPM also revealed that actual investment by local investors jumped by 55 
percent to Rp 10.47 trillion involving 78 projects during the first five 
months of the year from Rp 6.72 trillion involving 89 projects during the same 
period last year. 

The electronics, machinery and metal sector and the food processing sector 
attracted the most attention from investors. 

However, these investments only provided 37,783 jobs, down from 54,073 during 
the same period last year. 

Meanwhile, the number of new projects planned by local investors more than 
doubled to Rp 56.82 trillion from Rp 20.9 trillion previously. 

The agency's figures excluded investments in the oil and gas industry, banks 
and non-bank financial institutions, and the capital markets as business 
licenses for these sectors are issued by other government agencies. 

sidebar: Actual direct investment (January-May 2006) 

Foreign investment 

Major sector Investment Project 

- Metal, machinery and electronics US$735 million 49 - Paper and Printing 
US$437 million 6 - Textiles US$349 million 23 - Automotive US$316 million 13 - 
Trade and repair US$281 million 97 

Favored destinations Investment Project 

- West Java US$1.01 billion 94 - Jakarta US$394 million 143 - East Kalimantan 
US$377 million 1 - Central Java US$327 million 19 - Banten US$315 million 37 

Domestic investment 

Major sector Investment Project - Metal, machinery and electronics Rp 3.02 
trillion 10 - Food Rp 2.01 trillion 10 - Miscellaneous services Rp 1.59 trillion 
5 - Food crops and plantations Rp 1.50 trillion 7 - Wood Rp 540 billion 7 

Favored destinations 

Province Investment Project 

- Banten Rp 3,02 trillion 8 - Jakarta Rp 2.54 trillion 18 - Riau Rp 1.65 
trillion 
 5 - Central Kalimantan Rp 774 billion 3 - Lampung Rp 607 billion 1 

Source: BKPM 

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Joyo Indonesia News Service
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