Andi Haswidi, Jakarta – Mixed verdicts greeted President Susilo Bambang Yudhoyono's speech on the 2008 state budget bill Thursday, which highlighted figures and assumptions many analysts deemed as being overly optimistic.
In his annual state of the nation speech, Yudhoyono projected the country's economy would grow by 6.8 percent next year, with inflation safely guarded at 6 percent and the BI rate at 7.5 percent. He predicted the value of the rupiah would average Rp 9,100 to the US dollar and the price of oil would average $60 a barrel.
Chatib Basri, the executive director of the Institute for Economic and Social Research at the University of Indonesia (LPEM-UI), supported Yudhoyono's assumptions, describing them as being reasonable and based on justifiable targets.
To achieve the growth target, which is higher than this year's estimate of 6.3 percent, the government would naturally increase spending on infrastructure projects, which would directly boost economic growth, employment and poverty alleviation, he said.
"Infrastructure projects under the public works department and transportation can rectify many issues that cause supply constraints, which in turn can also dampen inflation," he said.
Under the 2008 state budget bill, which will be deliberated in the House of Representatives before being approved, the government will spend Rp 101.5 trillion on capital goods, up 48 percent from this year's budget. Most of the spending will be on infrastructure projects.
The targets are realistic, at least on paper, Chatib said, adding that it was now up to the government to materialize them.
However, the chairman of Indonesia's Chamber of Commerce and Industry (Kadin), Mohammad S. Hidayat, said the 6.8 percent growth assumption was unrealistic. "It's too optimistic, 6.5 percent would have been more reasonable," he told reporters at the House of Representatives after the President's speech.
Despite applauding the government's plan to raise spending on infrastructure, Hidayat was doubtful the allocation would be disbursed as planned, citing as an example the fact the government has only disbursed 22 percept of this year's total allocation.
"It is unrealistic. I don't think the government can turn this higher allocation plan into a reality," senior lawmaker Emir Moeis, who is also the House's budget committee vice chairman, said.
Emir said failing to meet the assumed economic growth rate would also jeopardize other budgetary targets, pointing to a case in 2006 when the government fell short of its tax income collection target by almost Rp 18 trillion.
"Failing to reach the tax income target could only mean two things: weak tax office enforcement or that real economic growth was lower than predicted."
Economist Ichsanudin Noorsy questioned the President's assumptions on the currency and the central bank rates.
"The actual condition of our economic structure is still fragile, shown by the impact of the US subprime mortgage crisis, which has brought down the value of our currency to approximately Rp 9,500 to the dollar," Noorsy said.
Fauzi Ichsan, a global economist at Standard Chartered, agreed the President's 6.8 percent growth target was optimistic compared to the market consensus from various surveys that averaged 6.1 percent.
"The growth target is ambitious... I fear that it is political in nature, without calculating the real market condition," said Fauzi, who is also the bank's vice president.