Muhamad Al Azhari & Janeman Latul – In yet another warning that Indonesia is far from being immune to the global economic turmoil, the government has once again cut its target for domestic manufacturing growth, on the back of lower expectations of overall economic growth, a senior official at the Industry Ministry said on Wednesday.

Agus Tjahajana, the ministry's secretary general, said manufacturing was expected to grow within the range of 2.5 percent to 3.5 percent. That's lower than the range of between 3.6 percent and 4.6 percent predicated by Industry Minister Fahmi Idris at the House of Representatives on Dec. 15.

Manufacturing, excluding oil and gas, accounted for 16.4 percent of gross domestic product in 2008, with the sector growing by 3.7 percent last year.

"This revision is because of the lower overall economic growth forecast," Agus told the Jakarta Globe by telephone, adding that export-oriented manufacturing firms, in such sectors as textiles and footwear, were likely to bear the brunt of the global economic slump.

The government predicted economic growth of 4.5 percent for this year in the revised budget assumptions, adopted by the House on Feb. 24, down from 6 percent in earlier forecasts.

Minister Fahmi had said during a hearing with the House last year that it was expected that growth in the manufacturing industry would be lower than last year, due to the fact that export-oriented firms would have to work hard to retain their markets in the major importing countries, like the United States, Japan and the European nations, amid crumbling demand as a global recession set in.

To help the manufacturing sector survive the slump, Agus said determined efforts would be needed to stimulate the domestic market. "The government's fiscal stimulus package, including the income tax breaks for workers, should help strengthen consumer spending," he said.

The government is to roll out its Rp 73.3 trillion ($6 billion) fiscal stimulus package this month. It includes the extending of income tax breaks to those earning less than Rp 5 million a month.

It is hoped that those who benefit from the breaks will spend the extra money in their pockets on domestic products.

Agus also said that greater efforts would be needed to eradicate smuggling. The government is concerned that the domestic market will be flooded by imports from China and other exporting powerhouses as they lose markets due to slumping demand in the developed world.