Finance minister rejects calls to revise state budget assumptions

The Jakarta Post, Jakarta

Despite the fear that a possible U.S. recession could hurt the country's economic growth, the government says it will maintain the 2008 state budget assumptions.

"Basically, a state budget is made to direct a country's economy. It is not possible to change the state budget (assumptions) every time the country is facing economic uncertainty," Finance Minister Sri Mulyani Indrawati said Thursday.

She was speaking in response to calls by some economists that the government change its budget assumptions on fears a possible U.S recession would severely impact the country's economy.

On Tuesday, stock markets across the globe tumbled because of the fear of a U.S. recession. The Jakarta Composite Index fell the most in five years, plunging by 7.7 percent to close at 2,294.52, while the rupiah fell to Rp 9,475 against the dollar.

However, global stock markets have since recovered, rising Wednesday following an intervention by the U.S. Federal Reserve, which cut its interest rate to 3.5 percent from 4.25 percent.

At the close of trading Thursday, the rupiah was trading at Rp 9,388 against the U.S. dollar, while the Jakarta Composite Index was at 2,516.70, rising 1.6 percent from the previous day, AFP reported.

Earlier on Thursday, economist Fadhil Hasan of the Institute for Development Economics and Finance said the government should change its state budget assumptions soon, instead of waiting until July.

Under current regulations, the government reviews its state budget assumptions at the end of the first semester, considering factors such as expenditure and revenue, the deficit, global oil prices, the central bank's interest rate, inflation rate and the rupiah exchange rate.

The review is to ensure that the country's economy is on track.

If deemed necessary, budget revisions will be made, with the approval of the House of Representatives.

Economist M. Ikhsan Modjo said the government should revise the budget by cutting the fuel subsidy and allocating the money to ensure the supply of staple foodstuffs, which have experienced price rices in recent weeks.

Responding to the suggestions, Sri Mulyani said the government would continue to maintain the targets set out under the state budget.

"This does not mean that the government responds slowly, it is just that we need to study every policy, especially those relating to costs," she said.

"What is important is that we have to make sure that the budget deficit is below the line."

The government has projected a budget deficit at 1.7 percent of gross domestic product, or Rp 74 trillion. (adt)