Urip Hudiono, Jakarta – The House of Representatives approved the 2007 budget Tuesday, with the government envisaging a wider deficit of Rp 40.5 trillion (US$4.3 billion) to help accelerate growth to 6.3 percent next year.

With inflation projected at 6.5 percent and the central bank's key interest rate at 8.5 percent, the budget further reflects the government's optimism that economic conditions are on the mend.

"The 2007 budget will be the anchor for macroeconomic stability, and provide as much of a stimulus for growth as the state finances can afford," Finance Minister Sri Mulyani Indrawati said during the House plenary session that approved the budget.

"The government will (through the budget) improve the effectiveness of its poverty alleviation programs, disaster rehabilitation projects and infrastructure construction projects in order to help reduce unemployment."

The 2007 budget allocates a total of Rp 50.6 trillion for social welfare improvements, including a new conditional cash subsidy program for poor households, and additional disaster relief and rural infrastructure development funds.

It also allocates Rp 61.9 trillion for fuel subsidies – based on an oil price forecast of US$63 a barrel and a rupiah exchange rate of Rp 9,300 per US dollar – and Rp 25.8 trillion for the subvention paid to state electricity utility PLN. Both of these figures are lower than last year's allocations in line with the government's decision to reduce them in return for higher social-welfare spending.

However, the bulk of next year's spending will continue to consist of routine central government expenditure on the bureaucracy and the procurement of goods and services, with the total allocation for these amounting to Rp 247.2 trillion.

The regions will receive Rp 258.8 trillion, with Sri Mulyani saying the 2007 budget would provide the basis for more proportionate allocations to local governments in future budgets.

With total expenditure pegged at Rp 763.6 trillion and total revenue – mostly from taxes – forecast at Rp 723.1 trillion, next year's deficit is expected to come in at Rp 40.5 trillion, or 1.1 percent of Indonesia's gross domestic product.

The deficit will be financed through Rp 40.6 trillion raised from bond sales and Rp 3.3 trillion from the sale of stakes in state firms, among other things. By comparison, this year's deficit is expected to come in at Rp 40 trillion (0.9 percent of GDP), with growth forecast at 5.8 percent.

In giving its approval, the Indonesian Democratic Party of Struggle, the nation's de facto opposition at present, reminded the government of how the House had granted it an additional Rp 320 trillion since the 2005 budget. However, it claimed that the additional money had never been reflected in significantly higher growth or social-welfare improvements.