Government Eyes 2nd Stimulus Plan

The Jakarta Globe, Dion Bisara & Muhamad Al Azhari, March 18, 2009

The government is considering launching a second fiscal stimulus package as a greater contraction of the global economy is expected to hurt Indonesia’s exports badly, a senior government official said on Tuesday.

The government has set March 18 as the date for the first disbursement of some Rp 12.2 trillion ($1.02 billion) in infrastructure funds as part of the Rp 73.3 trillion fiscal stimulus package endorsed by the House of Representatives on Feb. 24. The government hopes the stimulus package will support household spending — the main driver of national growth — as a slowdown in exports due to faltering global demand is expected to seriously hurt the economy.

But Chatib Basri, a senior advisor to the finance minister, said the initial stimulus package assumed global growth of 2.2 percent. It was now predicted to slow to 0.5 to 1.5 percent, and therefore the stimulus figure needed to be adjusted, he said.

“We will evaluate the appropriateness of the stimulus package in the first quarter,” Chatib said, adding that the country’s exports could no longer support growth as the global economy contracted and capital outflow decreased investment.

“The only hope is on private consumption and government spending. If consumption can grow by 4.5 percent, which usually grows by 5 percent, and government spending grows by 14 percent, we will see growth of 3.6 percent this year. That’s why the stimulus is important,” Chatib said.

Any adjustment to the stimulus figure was not likely to be made until May, he added, refusing to elaborate further.

Late on Monday, Finance Minister Sri Mulyani Indrawati said that Indonesia would likely add to its stimulus package, in line with the G-20’s suggestion that country’s stimulus packages should be at least 2 percent of gross domestic product for at least two years, 2009 and 2010.

Indonesia’s total fiscal stimulus package currently stands at 1.4 percent of GDP.

“If the initial stimulus package is not enough, we will add to it in the revised budget, or APBN-P,” Sri Mulyani said.

The final decision about whether to add funds to the package, the minister added, would also depend on political considerations. Indonesia will hold legislative elections on April 9 and presidential elections in July.

Indonesia’s exports declined from November until January as demand from international markets slowed. The Indonesian economy grew at a weaker-than-expected 5.2 percent in the fourth quarter from a year earlier, but fared better than its Asian neighbors such as Singapore and South Korea, whose economies actually contracted.

Photo: Visitors eye products intended for export at a trade fair in Jakarta late last year. (Safir Makki, JG)