UNCLAS JAKARTA 000106

SIPDIS
SENSITIVE

DEPT FOR E, EAP/MTS, EAP/EP, EEB/IFD/OMA AND EEB/EPPD
TREASURY FOR IA/MALACHY NUGENT AND TRINA RAND
USAID/ASIA/AA FOR MARGOT ELLIS
USAID/EGAT/AA FOR MARK SILVERMAN
COMMERCE FOR 4430/KELLY
DEPT PASS FEDERAL RESERVE SAN FRANCISCO FOR CURRAN
DEPARTMENT PASS EXIM BANK
SINGAPORE FOR SUSAN BAKER
TOKYO FOR ROBERT KAPROTH
DEPT PASS USTR WEISEL, EHLERS

E.O. 12598: N/A
TAGS: EFIN EINV ECON ID
SUBJECT: INDONESIAN GOVERNMENT PROPOSES INCREASING BUDGET DEFICIT TO
ADDRESS GROWING IMPACT OF FINANCIAL CRISIS

REF: Jakarta 62


1. (SBU) Summary. With the global economic outlook remaining
uncertain, the Indonesian government has announced plans to revise
its 2009 budget to increase the budget deficit to 2.5% of GDP, up
from 1%. If Parliament approves the revised budget, the government
plans to carry out additional fiscal stimulus aimed at preventing
growing unemployment and other impacts of the global financial
crisis, despite declining government revenues. Economic
Coordinating Minister and Finance Minister Sri Mulyani Indrawati
remains confident that Indonesia will maintain economic growth
greater than 3%, and considers the government's revised economic
growth rate target of 4.5-5.5% attainable if the government is able
to implement timely counter-cyclical measures to maintain domestic
demand. End summary.

Preparing for Worst, Hoping for Best with Strong Counter-cyclical
Policy
- - - - - - - - - - - -


2. (U) In a January 14 speech to the Indonesian Council on World
Affairs, Economic Coordinating Minister and Finance Minister Sri
Mulyani Indrawati spoke at length about the government of
Indonesia's response to challenging economic conditions in both 2008
and 2009. As a member of the G20, Indonesia has had an opportunity
to work with international partners to coordinate responses to the
global financial crisis. The Minister expressed confidence that
Indonesia will maintain economic growth greater than 3% in 2009.
Based on current conditions, she considers the government's revised
economic growth rate target of 4.5-5.5% attainable if the government
succeeds in implementing timely counter-cyclical measures to boost
domestic demand. She expressed caution about the prospects for
exports and investment in 2009, given continued declining commodity
prices.


3. (U) With President Yudhoyono charging his Cabinet to prepare for
the worst, while hoping for the best, Sri Mulyani briefed on the
government's proposal to increase the budget deficit to 2.5% of GDP
(IDR 132 trillion, equivalent to about USD 11.75 billion), up from a
planned deficit of 1% of GDP (IDR 51 trillion). She said the
additional proposed deficit spending in 2009 reflected both
anticipated declining revenues and the need of the government to
spend more to counter slumping global demand.

Highlighting Record of Strong Economic Performance and Benefits of
Reforms
- - - - - - - - - -


4. (U) While acknowledging that the government is still trying to
measure the depth and duration of the impact of the global financial
crisis on the Indonesian economy and to manage those impacts, Sri
Mulyani highlighted the government's strong economic performance and
reform efforts. In response to those who complain that Indonesia
has yet to match pre-Reformasi growth rates, Sri Mulyani cited the
current administration's record of economic growth exceeding 6% for
the past two years and said Indonesia could enjoy strong economic
growth along with freedom and democracy. She expressed particular
pride in the results of continuing tax reform, citing Indonesia's
more than 3 million new taxpayers in 2008 and state revenues
exceeding the 2008 budget target by more than IDR 80 trillion. An
appreciative audience of key business leaders expressed strong
support for the Minister's role in these achievements.

HUME