GOVT CHALLENGED TO MEET ITS 6.2 PCT ECONOMIC GROWTH TARGET

By Andi Abdussalam

       Jakarta, Aug 20 (ANTARA) - While the government sees better economic conditions next year, businesses say that the government has to work hard to achieve its 6.2 percent economic growth and 6.5 percent inflation rate targets for 2009.

        "The government has to work hard and focus on infrastructure development if it wants to achieve its economic growth and inflation rate targets next year," Chairman of the Indonesian Association of Young Entrepreneurs (Hipmi), Erwin Aksa said on Monday.

        The Hipmi chairman made the statement in response to the government's prediction that Indonesia's economic growth in 2009 would remain at over six percent despite persistent external pressures.

        "We have been able to maintain the economic growth at over 6 percent during eight consecutive quarters," President Susilo Bambang Yudhoyono said in his state of the nation address on the Draft 2009 State Budget and Financial Notes before the House of Representatives (DPR)'s plenary session here last week.

        The president said it was a matter of fact that Indonesia's economy during the first semester of 2008 managed to keep its momentum going with a growth rate of 6.4 percent, which is the highest rate after the economic crisis in 1998.

        "We should be grateful that despite the persistent external pressures, we have been able to maintain the economic growth of over 6 percent during eight consecutive quarters," the president said.

        Yet, Hipmi is of the view that the 6.2 percent economic growth and 6.5 percent inflation rate targets are a challenge to the government owing to the fact that commodity prices are still high and the people's purchasing power still weak.

        "The 2009 state budget should focus on the development of infrastructure in order to improve the investment climate and reduce the poverty rate," Erwin Aksa said.

        According to the the Hipmi chairman, the budget should be spent on effective and efficient infrastructure development programs so that it would have a direct effect on the economic growth, on increasing the people's purchasing power and on improving their living standard.

        In the meantime, inflation will also pose a challenge. The Indonesian Chamber of Commerce and Industry (Kadin) said that the government's major challenge in 2009 was to control inflation. It said that oil and commodity prices in the world market are still difficult to predict until the beginning of 2009.

        "If the government is unable to control the inflation, the purchasing power of the middle class will also drop. At present, domestic demand is still relatively good because the middle class has been able to maintain the level of their purchasing power," Bambang Soesatyo, chairman of Kadin's permanent committee for monetary and fiscal affairs, said.

        "The problem is whether or not we will achieve a good growth that can improve the people's purchasing power, lower the poverty rate and create jobs for both new and old workers," he said.

        He said banks would also likely make necessary adjustments to their credit provisions following the increase in the central bank's benchmark interest rate, which could serve as a stumbling block to the development of the real sector.

        The Indonesian central bank (Bank Indonesia/BI) early this month raised its benchmark interest rate by 25 basis points from 8.75 percent to 9.00 percent in an effort to offset the upward trend of the inflation.

        The increase in bank interest rates could hamper the development of the production sector.

        "It is difficult to expect a significant expansion in investment next year because the business climate is not conducive due to increased risk factors," Bambang Susatyo said.

        Therefore, according to Erwin Aksa, the government has to create a conducive business climate to boost the development of the real sector and to realize infrastructure projects that had been planned but not yet built so far.

        Virtually, Erwin Aksa said, the government's expansive draft 2009 state budget was relatively realistic to support the economic growth target.

        The government has prepared a comprehensive state budget with Rp1,122 trillion expenditure allocation, far over the state revenues and grants which were set at Rp1,022 trillion.

        A finance ministry official is even optimistic with the country's economic condition. He predicted that the country's economic condition in 2009 would be better than this year's, due to various supporting factors.

        "Indonesia's economic condition in 2009 would be better than in 2008 because the world's economy is expected to perform better next year in better market conditions while Indonesia will also have a better tax resource-base than that in the previous year," Anggito Abimayu, Head of the Finance Ministry's Fiscal Policy Affairs, said.

        He mentioned a new law on income tax (PPh) which followed the issuance of a law on general tax provisions and procedures (KUP). It is expected that this year the deliberations of a law on value added tax (PPN) and a law on luxury good sales tax (PPnBM) would have also been completed.

        "The various instruments will reinforce the country's tax-resource base in 2009 and would increase the taxpayers' obedience so that the country's tax revenues would also increase," he said. T.A014/A/HNG/A/S012)