Muklis Ali, Jakarta – Indonesia raised the forecast for its 2009 budget deficit to 2.5 percent of GDP on Tuesday, from 1 percent previously, as the government seeks to counter the global economic downturn in an election year.

Finance Minister Sri Mulyani Indrawati, who has announced plans to spend more than 72 trillion rupiah ($6.53 billion) on infrastructure and other projects to create more jobs, said the government would rely more on official creditors to finance the bigger deficit. She gave a revised deficit forecast of 132 trillion rupiah.

Last month, she said that Indonesia had lined up standby loans from Japan, Australia and agencies such as the World Bank, projected to reach $5 billion.

Anggito Abimanyu, head of the finance ministry's fiscal policy board, said earlier on Tuesday that the government had no plan to increase its target for debt sales this year despite a higher budget deficit, and would maintain its net bond issuance target at 54.7 trillion rupiah.

Indonesia's finance ministry, which scrapped debt sales in October because of the global financial crisis, raised 5.95 trillion rupiah in a bond auction on Tuesday, almost double its target, which analysts took as a sign of improving investor confidence in Southeast Asia's biggest economy.

"The financing of the deficit is a key issue," said economist Anton Gunawan of Bank Danamon, adding that the government needs to "convince the markets that it will be able to secure larger official loans and not seek more funds from the market."

Indrawati said the government has revised several other key economic forecasts in the 2009 state budget "in response to challenges arising from slowing global economies and drastic changes in some economic indicators."

These include a new average rupiah exchange rate of 11,000 per dollar, against 9,400 per dollar previously, while the oil price is now forecast to average $45 per barrel, against $80 per barrel.

The state budget forecasts for 2009 were approved late last year, but the revisions will need to be approved by parliament.

Indonesia has announced several measures to spur growth which the government said could slow to 4.5-5.5 percent in 2009 from an estimated 6.2 percent in 2008.

"Extra spending and abandoning fiscal consolidation as a policy priority is within expectations. Indonesia has some fiscal legroom to cushion the economy with extra spending," said Christy Tan, Singapore-based currency ctrategist at Bank of America.