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Business leaders and analysts say the 6.7 percent economic growth target set in the draft 2012 budget is achievable. They also said they were not concerned about the plan to slash the energy subsidy, which could lead to limits on subsidized fuel use and an increase in electricity prices.
Erwin Aksa, the chairman of the Indonesian Young Entrepreneurs Association (Hipmi), said 6.7 percent growth was a “conservative target” and the delivery of key infrastructure projects could push growth to 7 percent.
Franky Sibarani, secretary general of the Indonesian Employers Association (Apindo), said Indonesia was an attractive destination for foreign investors. He forecast an increase in investment and steady consumption spending would prompt an uptick in growth.
He said plans by foreign investors to use Indonesia as a production base, including the automotive industry, could provide a stimulus to the economy as it creates jobs. The automotive boom is prompted by the cheap price of Indonesian labor and the presence of a large pool of potential consumers.
In President’s Susilo Bambang Yudhoyono’s speech in the House of Representatives on Tuesday, he signaled that the government might start implementing a long-delayed plan for limiting the volume of subsidized fuel use next year — a politically unpopular move that might curb consumer spending, which accounts for more than half of economic activity.
The government had announced a plan to ration subsidized Premium fuel to private car owners in a bid to avoid price increases. But poor preparation at gas stations in many remote areas — which do not provide non-subsidized fuels —has prevented the plan being realized.
The need to curb the fuel subsidy was prompted by the surge in the world oil price, which placed an increasing strain on state coffers to keep the end price for consumers stable.
Jongkie Sugiarto, deputy chairman of the Association of Indonesia Automotive Industries (Gaikindo) and president director of Hyundai Mobil Indonesia, howev er, was not overly concerned about the prospect of fuel rationing.
“From the industry side, we have been ready. We have been encouraging buyers not to use Premium. For cars manufactured after 2005, they better use good quality fuel, with the octane level above 91. Premium is fuel with the octane level at 88, it could damage engines and cost more,” he said.
Another effect of a plan to slash the subsidy is that electricity prices may increase from April because of the reduced government subsidy, Finance Minister Agus Martowardojo said.
But he added that the plan will first be discussed in the House. The government’s plan to raise electricity prices by between 10 percent and 15 percent this year had been turned down by the House.
The minister said the increase was possible because the government had not raised the basic electricity price since 2004 and the plan was unlikely to fuel inflation next year.
The government has lowered the electricity energy subsidy in the draft 2012 state budget to Rp 45 trillion ($5.3 billion) from the Rp 66 trillion set aside in this year’s revised state budget.
Purbaya Yudhi Sadewa, chief economist at Danareksa Research Institute, said that a gradual removal of the subsidy had been expected, but he was not convinced Yudhoyono would implement a policy that would harm consumer purchasing power.
“It is more of a political decision. I don’t think he would raise the fuel price,” Purbaya said.
In the draft budget for 2012 the government projects inflation next year at 5.3 percent, compared to an estimated 5.6 percent this year. The budget assumes the interest on three-month central bank debt paper staying at 6.5 percent and projects an exchange rate of Rp 8,800 to the dollar.
It also assumes an oil price of $90 a barrel, down slightly from the current $95 a barrel, and domestic oil production at 950,000 barrels a day, a slight increase from 945,000 barrels a day now.
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