ProdukHukum BankIndonesia
Statement to Parliament on the Macroeconomic
Framework and Key Points of Fiscal Policy
Under Act Num ber 17 of 2003, t he Cent ral Governm ent is required t o
present inform at ion on t he m acroeconom ic fram ework and key point s of
fiscal policy for t he upcom ing budget year no lat er t han m id- May during t he
current year. For t his purpose, t he Minist er of Finance, represent ing t he
Cent ral Governm ent , delivered a st at em ent t o Parliam ent on t he
m acroeconom ic fram ework and key point s of fiscal policy on 22 May 2007.
This inform at ion will be discussed by t he Cent ral Governm ent and Parliam ent
during consult at ions on general policy and budget priorit ies t o be used as a
guide for m inist ries and st at ut ory agencies in preparing t heir individual
budget proposals.
The inform at ion covered by t he m acroeconom ic fram ew ork and key fiscal
policies includes the following:
1) Review of the Latest Economic Developments and Challenges in 2007
2) National Economic Development Targets, Macroeconomic and Sectoral
Targets
3) Fiscal and Monetary Policy Support
4) Fiscal Policy and the Draft 2008 Budget, including macro assumptions for
2008.
Description of the Latest Economic Developments and Challenges in
2007
Ongoing developm ent s in indicat ors show t hat t he I ndonesian econom y is
gaining st rengt h and m om ent um . Econom ic growt h and act ivit y are in t he
rise while t he nat ion has robust , well- m anaged econom ic fundam ent als and
stability. This progress is indicat ed by such developm ent s as t he m ount ing
t rend in econom ic growt h, subdued inflat ion, st able exchange rat e and
steadily rising international reserves.
1. Econom ic growt h in Q1/ 2007 reached 6% . The im proved growt h
perform ance was driven by st ronger perform ance in invest m ent , export s
of goods and services and privat e consum pt ion. I n t he indust rial sect or,
growt h m om ent um cam e from m ore vigorous perform ance in service
sect ors and part icularly t ransport and com m unicat ions, followed by t he
trade, hotels and restaurants sector and construction.
2. The im proved condit ion of t he econom y also provided added im pet us t o
public purchasing power and economic activity, indicated among others by
t axat ion ( VAT) , elect ricit y consum pt ion, growt h in aut om ot ive sales and
expansion in consumption credit within the banking system.
3. A m ount ing t rend w as evident in invest m ent t o t he end of April 2007,
reflect ed in various invest m ent indicat ors such as: higher rat e of realised
foreign and dom est ic invest m ent s, grow ing im port s of capit al goods and
st ronger earnings perform ance by st at e- owned and privat e sect or
companies that will support higher levels of retained earnings available for
reinvestment. I n t he banking syst em , t he im provem ent in t he LDR since
t he end of 2006 alongside growt h in deposit or funds and credit reflect s
m ore vigorous disbursem ent of banking funds t o t he business com m unit y.
I nvest m ent credit and working capit al credit cont inued t o expand during
Q1/2007. The posit ive t rend in invest m ent indicat ors was also support ed
by expanded capit al expendit ures by t he Cent ral Governm ent and
Regional Governm ents. These posit ive developm ent s are predict ed t o
continue throughout 2007.
4. In international trade, the improvement in export performance is reflected
in st ronger export growt h, part icularly in t he non- oil and gas sect or. This
upward t rend will be sust ained in line wit h st ronger invest m ent , rising
global m arket prices m ainly for prim ary com m odit ies and expanded t rade
volum e wit h I ndonesia s t rading part ners. On the other hand, imports will
also m ount in response t o increased public purchasing pow er. The t win
t rends in export s and im port s will have a posit ive im pact on I ndonesia's
trade balance.
5. Various governm ent policies put int o place t o ensure unim peded supply
and dist ribut ion of foodst uff com m odit ies and especially rice have
delivered t he int ended result s. I nflat ionary pressure in t he foodst uffs
cat egory dim inished furt her in April 2007. That m ont h recorded - 0.16%
deflation, bringing cumulative CPI inflation for January- April 2007 down to
1.74% from the previous month's level of 1.91%.
6
I n t he m onet ary sect or, policy shift ed t o a caut ious easing in int erest
rat es following t he achievem ent of m acroeconom ic st abilit y. The BI rat e,
already at 9.0% in April 2007, was lowered further by 25 bps in May 2007
t o 8.75% . The reduct ion in t he BI rat e produced a furt her narrowing in
t he spread against t he Fed Funds rat e t o 350 bps. Since m id- 2006, t he
Fed Funds rate has held steady at 5.25%.
7. Anot her indicat or point ing t o upbeat econom ic condit ions was t he rupiah,
which t raded at about Rp 9,096 t o t he US dollar wit h an appreciat ing
trend. I nt ernat ional reserves cont inued t o m ount , reaching US$49.3
billion in April 2007, having climbed US$2.1 billion from March 2007.
8. St rengt hening econom ic condit ions and rising m arket confidence in
domestic economic performance was reflected in the upward movement in
t he Jakart a Com posit e Share Price ( JSX) I ndex. I n April 2007, t he JSX
index pushed past t he 2000 barrier wit h m arket capit alisat ion at Rp
1,394.7 t rillion, up 11.7% over 2006. Foreign net buying in April 2007
reached Rp 5.6 t rillion, well above t he March 2007 level of Rp 2.3 t rillion.
Fact ors driving t his posit ive t rend include favourable sent im ent am ong
m arket players over t he condit ion of t he dom est ic econom y, result s
reported in quarterly financial statements and low rate of inflation.
9. The m arket not only gained added confidence in t he dom est ic econom y,
but also in governm ent policies. Reflect ing t his was t he decline in t he
yield curve, indicating improved performance and rising market interest in
governm ent bonds. Net buying by foreigners in April 2007 clim bed t o Rp
7.7 t rillion, well above Rp 4.5 t rillion in March 2007. The global econom y
cont inues t o offer favourable condit ions for dom est ic econom ic growt h in
2007, despite some challenges that call for vigilance.
10. Econom ic growt h rem ained st rong despit e som e decline brought on by
slowing growt h in t he Unit ed St at es econom y in 2007. The rise in
Japanese int erest rat es m ay affect capit al flow s t o t he region, but t his is
seen as having very little impact on the Indonesian economy.
11. Ot her challenges include inst abilit y in prim ary com m odit y prices and t he
global money market, which if not monitored carefully could bear down on
the national economy.
12. Global monetary liquidity remains at fairly high levels, fuelling competition
in world int erest rat es and capit al flow s. This m ay have undesirable
consequences for international financial stability.
13. Challenges on t he dom est ic front include t he need t o proceed urgent ly
wit h infrast ruct ure developm ent program m es and deregulat ion for
creation of an attractive investment climate.
National Economic Development Targets, Macroeconomic and
Sectoral Targets
14. The nat ional econom ic developm ent t arget s for 2008 were developed for
achievem ent of t he obj ect ives in t he long- t erm developm ent plan. The
developm ent t hem e adopt ed for 2008 is accelerat ion of econom ic growt h
in pursuit of reduct ions in povert y and unem ploym ent . To t his end, t he
governm ent has est ablished cert ain t arget s wit h m easurable indicat ors:
econom ic growt h at 6.6% - 7.0% , unem ploym ent reduced t o 8% - 9% and
percent age of t he populat ion living below t he povert y line at 15.0% 16.8%.
15. These m easurables w ill be achieved t hrough eight developm ent priorit ies:
( i) increased invest m ent , export s and em ploym ent opport unit ies, ( ii)
revit alisat ion of agricult ure, forest ry and fisheries and act ivit ies in rural
development, ( iii) accelerat ed infrast ruct ure developm ent and im proved
energy m anagem ent , ( iv) im proved access and qualit y in t he educat ion
and healt h sect ors, ( v) height ened effect iveness in povert y reduct ion, ( vi)
eradicat ion of corrupt ion and fast er im plem ent at ion of bureaucrat ic
reforms, ( vii) st rengt hened defence capabilit ies and enhanced dom est ic
securit y, and ( viii) disast er relief, reduct ion in disast er risks and im proved
eradication of contagious diseases.
16. I n addit ion t o t hese m easures, developm ent t arget s will be pursued
t hrough achievem ent of m acroeconom ic and sect oral obj ect ives. To
achieve t he predict ed 6.6% - 7.0% econom ic growt h for 2008, effort s w ill
focus on sources of growt h wit h t arget s for household consum pt ion at
5.7%- 6.2% , governm ent consum pt ion at 6.0% - 6.5% , invest m ent at
14.5%- 18.2% and export s and im port s at 12.0% - 13.6% and 17.3% 19.1%. Alongside t his, t he t arget ed indust ry growt h will be support ed by
growt h in agricult ure of 3.5% - 3.7% , m anufact uring at 7.7% - 8.1%,
const ruct ion at 10.0% - 10.5% and t ransport and com m unicat ions at
13.6%- 14.4%.
17. The t arget ed growt h in consum pt ion w ill be pursued t hrough act ions t o
boost real incom es and public purchasing power. This will include a
subdued level of inflat ion and cont inued price st abilit y, decline in int erest
rat es, launching of a Nat ional Program m e for Com m unit y Em powerm ent
and disbursem ent of condit ional Direct Cash Transfers and appropriat e
subsidies.
18. Act ions for achievem ent of t he invest m ent growt h t arget s will involve
perform ance im provem ent s in sources of invest m ent , including low er
interest rates and improvement in the bank intermediary function, policies
t o prom ot e higher levels of approval and realisat ion in foreign and
dom est ic invest m ent proj ect s, im proved disbursem ent of st at e capit al
expendit ures, approval and m onit oring of regional budget capit al
expendit ures, governm ent support for proj ect s under t he public- private
part nership, supervision of capit al expendit ures by st at e ent erprises and
more vigorous activity in IPOs and investment on the capital market.
19. Policies and act ions for export growt h will include t he est ablishm ent and
expansion of t he Nat ional Single Window ( NSW) and ASEAN Single
Window ( ASW) , m apping and analysis of m ainst ay and pot ent ial
commodities and the implementation of FTA and EPA.
Fiscal and Monetary Policy Support
The Governm ent and Bank I ndonesia w ill coordinat e act ions and policies
in support of achievem ent of nat ional developm ent t arget s for 2008,
including the following:
20. Macroeconom ic st abilit y w ill be m aint ained by keeping inflat ion low in
order t o allow room for easing in loan int erest rat es. To t his end, t he
rupiah will m anaged t o ensure an opt im um level of st abilit y in support of
growth and purchasing power.
21. The monetary and fiscal policy direction will be coordinated through firmer
m easures t o safeguard j oint t arget s and harm onisat ion of m onet ary and
fiscal policies in order t o prom ot e opt im um growt h and cont rol of
economic liquidity.
22. Fiscal and decent ralisat ion policy will be coordinat ed t hrough
im provem ent s in budget operat ions at t he regional level t o accelerat e t he
pace of developm ent , fast er approvals for regional governm ent budget s,
report ing and use of regional budget expendit ures, im provem ent in legal
cert aint y and harm onisat ion of cent ral governm ent and regional
government regulations.
Support from Fiscal Policy and the Draft 2008 Budget
23. The orient at ion of fiscal policy and draft ing of t he st at e budget are t w o
processes t hat have undergone change. Up t o 2006, policy was orient ed
t oward fiscal consolidat ion, but since t hen has been st eered t owards
delivering an econom ic st im ulus. During 2008, t he governm ent will again
use t he St at e Budget as a st im ulus for econom ic growt h, as indicat ed by
the projected budget deficit at 1.6%- 1.8%.
24. Various policies and im provem ent s will be put in place t o achieve t he
increased revenue t arget s for 2008, in which t he rat io of t ax revenues t o
GDP will be raised t o 13.5% - 14%. To t his end, t he governm ent will t ake
further actions in reform of tax administration, broadening of the tax base
and intensified tax collection.
25. I ncreased cent ral governm ent expendit ures will be com plem ent ed by
im proved qualit y of expendit ures t hrough precise planning, fast er and
m ore effect ive deliberat ion of budget it em s wit h Parliam ent , execut ion of
expendit ures in keeping wit h prudent ial principles, rest rict ion of revisions
t o regional governm ent budget s t o changes in budget assum pt ions and
cases of emergency and a tidy, disciplined reporting system.
26. Concerning t he policy direct ion for regional expendit ures, t he governm ent
will consolidat e t he nat ional budget and regional budget deficit s and
st rengt hen fiscal decent ralisat ion in support of regional aut onom y. I n t his
regard, t he governm ent will work t owards reduct ion in fiscal disparit ies
bet ween t he cent ral and regional levels and am ong t he regions
t hem selves, regional governm ent capacit y building for m axim ising t he
pot ent ial for regional governm ent revenues, phased t ransfer of
deconcent rat ion and assist ance funds designat ed for funding act ivit ies for
which regions are already responsible w it h t he use of Special Allocat ion
Funds and t he rescinding of hold harm less wit h no allocat ion of
adjustments funds to be made during 2008.
27. On t he financing side, t he Governm ent w ill focus on dom est ic sources of
budget financing and other low- cost, low risk sources.
28. I n 2008, t he developm ent of t he Draft Budget will t ake place alongside a
fiscal risk analysis of fact ors likely t o affect achievem ent of t he Draft
Budget t arget s. Fiscal risks t hat m ay arise include t he risk of changes in
assumptions (sensitivity), risk of increased expenditures related to natural
disast ers and ot her event s, risks from governm ent com m it m ent s and
support for infrast ruct ure proj ect s and debt risk influenced by m ovem ent s
in interest rates, the exchange rate and other factors.
29. I n developing t he Draft 2008 Budget , t he governm ent has t aken exist ing
econom ic condit ions int o account and adopt ed t he following underlying
assumptions:
GDP growth at 6.6%- 7.0%
Inflation (y- o- y) at 6.0%- 6.5%
Rupiah in the range of Rp 9,100- 9,400 to the US dollar.
3- month SBI rate at 7.5%- 8.0%
International oil prices at US$57- 60 per barrel
Lifting of Indonesian crude (MBCD) from 1.034 to 1.040 million barrels
per day.
Chief Public Relations Officer
Samsuar Said
NIP 060034705
Framework and Key Points of Fiscal Policy
Under Act Num ber 17 of 2003, t he Cent ral Governm ent is required t o
present inform at ion on t he m acroeconom ic fram ework and key point s of
fiscal policy for t he upcom ing budget year no lat er t han m id- May during t he
current year. For t his purpose, t he Minist er of Finance, represent ing t he
Cent ral Governm ent , delivered a st at em ent t o Parliam ent on t he
m acroeconom ic fram ework and key point s of fiscal policy on 22 May 2007.
This inform at ion will be discussed by t he Cent ral Governm ent and Parliam ent
during consult at ions on general policy and budget priorit ies t o be used as a
guide for m inist ries and st at ut ory agencies in preparing t heir individual
budget proposals.
The inform at ion covered by t he m acroeconom ic fram ew ork and key fiscal
policies includes the following:
1) Review of the Latest Economic Developments and Challenges in 2007
2) National Economic Development Targets, Macroeconomic and Sectoral
Targets
3) Fiscal and Monetary Policy Support
4) Fiscal Policy and the Draft 2008 Budget, including macro assumptions for
2008.
Description of the Latest Economic Developments and Challenges in
2007
Ongoing developm ent s in indicat ors show t hat t he I ndonesian econom y is
gaining st rengt h and m om ent um . Econom ic growt h and act ivit y are in t he
rise while t he nat ion has robust , well- m anaged econom ic fundam ent als and
stability. This progress is indicat ed by such developm ent s as t he m ount ing
t rend in econom ic growt h, subdued inflat ion, st able exchange rat e and
steadily rising international reserves.
1. Econom ic growt h in Q1/ 2007 reached 6% . The im proved growt h
perform ance was driven by st ronger perform ance in invest m ent , export s
of goods and services and privat e consum pt ion. I n t he indust rial sect or,
growt h m om ent um cam e from m ore vigorous perform ance in service
sect ors and part icularly t ransport and com m unicat ions, followed by t he
trade, hotels and restaurants sector and construction.
2. The im proved condit ion of t he econom y also provided added im pet us t o
public purchasing power and economic activity, indicated among others by
t axat ion ( VAT) , elect ricit y consum pt ion, growt h in aut om ot ive sales and
expansion in consumption credit within the banking system.
3. A m ount ing t rend w as evident in invest m ent t o t he end of April 2007,
reflect ed in various invest m ent indicat ors such as: higher rat e of realised
foreign and dom est ic invest m ent s, grow ing im port s of capit al goods and
st ronger earnings perform ance by st at e- owned and privat e sect or
companies that will support higher levels of retained earnings available for
reinvestment. I n t he banking syst em , t he im provem ent in t he LDR since
t he end of 2006 alongside growt h in deposit or funds and credit reflect s
m ore vigorous disbursem ent of banking funds t o t he business com m unit y.
I nvest m ent credit and working capit al credit cont inued t o expand during
Q1/2007. The posit ive t rend in invest m ent indicat ors was also support ed
by expanded capit al expendit ures by t he Cent ral Governm ent and
Regional Governm ents. These posit ive developm ent s are predict ed t o
continue throughout 2007.
4. In international trade, the improvement in export performance is reflected
in st ronger export growt h, part icularly in t he non- oil and gas sect or. This
upward t rend will be sust ained in line wit h st ronger invest m ent , rising
global m arket prices m ainly for prim ary com m odit ies and expanded t rade
volum e wit h I ndonesia s t rading part ners. On the other hand, imports will
also m ount in response t o increased public purchasing pow er. The t win
t rends in export s and im port s will have a posit ive im pact on I ndonesia's
trade balance.
5. Various governm ent policies put int o place t o ensure unim peded supply
and dist ribut ion of foodst uff com m odit ies and especially rice have
delivered t he int ended result s. I nflat ionary pressure in t he foodst uffs
cat egory dim inished furt her in April 2007. That m ont h recorded - 0.16%
deflation, bringing cumulative CPI inflation for January- April 2007 down to
1.74% from the previous month's level of 1.91%.
6
I n t he m onet ary sect or, policy shift ed t o a caut ious easing in int erest
rat es following t he achievem ent of m acroeconom ic st abilit y. The BI rat e,
already at 9.0% in April 2007, was lowered further by 25 bps in May 2007
t o 8.75% . The reduct ion in t he BI rat e produced a furt her narrowing in
t he spread against t he Fed Funds rat e t o 350 bps. Since m id- 2006, t he
Fed Funds rate has held steady at 5.25%.
7. Anot her indicat or point ing t o upbeat econom ic condit ions was t he rupiah,
which t raded at about Rp 9,096 t o t he US dollar wit h an appreciat ing
trend. I nt ernat ional reserves cont inued t o m ount , reaching US$49.3
billion in April 2007, having climbed US$2.1 billion from March 2007.
8. St rengt hening econom ic condit ions and rising m arket confidence in
domestic economic performance was reflected in the upward movement in
t he Jakart a Com posit e Share Price ( JSX) I ndex. I n April 2007, t he JSX
index pushed past t he 2000 barrier wit h m arket capit alisat ion at Rp
1,394.7 t rillion, up 11.7% over 2006. Foreign net buying in April 2007
reached Rp 5.6 t rillion, well above t he March 2007 level of Rp 2.3 t rillion.
Fact ors driving t his posit ive t rend include favourable sent im ent am ong
m arket players over t he condit ion of t he dom est ic econom y, result s
reported in quarterly financial statements and low rate of inflation.
9. The m arket not only gained added confidence in t he dom est ic econom y,
but also in governm ent policies. Reflect ing t his was t he decline in t he
yield curve, indicating improved performance and rising market interest in
governm ent bonds. Net buying by foreigners in April 2007 clim bed t o Rp
7.7 t rillion, well above Rp 4.5 t rillion in March 2007. The global econom y
cont inues t o offer favourable condit ions for dom est ic econom ic growt h in
2007, despite some challenges that call for vigilance.
10. Econom ic growt h rem ained st rong despit e som e decline brought on by
slowing growt h in t he Unit ed St at es econom y in 2007. The rise in
Japanese int erest rat es m ay affect capit al flow s t o t he region, but t his is
seen as having very little impact on the Indonesian economy.
11. Ot her challenges include inst abilit y in prim ary com m odit y prices and t he
global money market, which if not monitored carefully could bear down on
the national economy.
12. Global monetary liquidity remains at fairly high levels, fuelling competition
in world int erest rat es and capit al flow s. This m ay have undesirable
consequences for international financial stability.
13. Challenges on t he dom est ic front include t he need t o proceed urgent ly
wit h infrast ruct ure developm ent program m es and deregulat ion for
creation of an attractive investment climate.
National Economic Development Targets, Macroeconomic and
Sectoral Targets
14. The nat ional econom ic developm ent t arget s for 2008 were developed for
achievem ent of t he obj ect ives in t he long- t erm developm ent plan. The
developm ent t hem e adopt ed for 2008 is accelerat ion of econom ic growt h
in pursuit of reduct ions in povert y and unem ploym ent . To t his end, t he
governm ent has est ablished cert ain t arget s wit h m easurable indicat ors:
econom ic growt h at 6.6% - 7.0% , unem ploym ent reduced t o 8% - 9% and
percent age of t he populat ion living below t he povert y line at 15.0% 16.8%.
15. These m easurables w ill be achieved t hrough eight developm ent priorit ies:
( i) increased invest m ent , export s and em ploym ent opport unit ies, ( ii)
revit alisat ion of agricult ure, forest ry and fisheries and act ivit ies in rural
development, ( iii) accelerat ed infrast ruct ure developm ent and im proved
energy m anagem ent , ( iv) im proved access and qualit y in t he educat ion
and healt h sect ors, ( v) height ened effect iveness in povert y reduct ion, ( vi)
eradicat ion of corrupt ion and fast er im plem ent at ion of bureaucrat ic
reforms, ( vii) st rengt hened defence capabilit ies and enhanced dom est ic
securit y, and ( viii) disast er relief, reduct ion in disast er risks and im proved
eradication of contagious diseases.
16. I n addit ion t o t hese m easures, developm ent t arget s will be pursued
t hrough achievem ent of m acroeconom ic and sect oral obj ect ives. To
achieve t he predict ed 6.6% - 7.0% econom ic growt h for 2008, effort s w ill
focus on sources of growt h wit h t arget s for household consum pt ion at
5.7%- 6.2% , governm ent consum pt ion at 6.0% - 6.5% , invest m ent at
14.5%- 18.2% and export s and im port s at 12.0% - 13.6% and 17.3% 19.1%. Alongside t his, t he t arget ed indust ry growt h will be support ed by
growt h in agricult ure of 3.5% - 3.7% , m anufact uring at 7.7% - 8.1%,
const ruct ion at 10.0% - 10.5% and t ransport and com m unicat ions at
13.6%- 14.4%.
17. The t arget ed growt h in consum pt ion w ill be pursued t hrough act ions t o
boost real incom es and public purchasing power. This will include a
subdued level of inflat ion and cont inued price st abilit y, decline in int erest
rat es, launching of a Nat ional Program m e for Com m unit y Em powerm ent
and disbursem ent of condit ional Direct Cash Transfers and appropriat e
subsidies.
18. Act ions for achievem ent of t he invest m ent growt h t arget s will involve
perform ance im provem ent s in sources of invest m ent , including low er
interest rates and improvement in the bank intermediary function, policies
t o prom ot e higher levels of approval and realisat ion in foreign and
dom est ic invest m ent proj ect s, im proved disbursem ent of st at e capit al
expendit ures, approval and m onit oring of regional budget capit al
expendit ures, governm ent support for proj ect s under t he public- private
part nership, supervision of capit al expendit ures by st at e ent erprises and
more vigorous activity in IPOs and investment on the capital market.
19. Policies and act ions for export growt h will include t he est ablishm ent and
expansion of t he Nat ional Single Window ( NSW) and ASEAN Single
Window ( ASW) , m apping and analysis of m ainst ay and pot ent ial
commodities and the implementation of FTA and EPA.
Fiscal and Monetary Policy Support
The Governm ent and Bank I ndonesia w ill coordinat e act ions and policies
in support of achievem ent of nat ional developm ent t arget s for 2008,
including the following:
20. Macroeconom ic st abilit y w ill be m aint ained by keeping inflat ion low in
order t o allow room for easing in loan int erest rat es. To t his end, t he
rupiah will m anaged t o ensure an opt im um level of st abilit y in support of
growth and purchasing power.
21. The monetary and fiscal policy direction will be coordinated through firmer
m easures t o safeguard j oint t arget s and harm onisat ion of m onet ary and
fiscal policies in order t o prom ot e opt im um growt h and cont rol of
economic liquidity.
22. Fiscal and decent ralisat ion policy will be coordinat ed t hrough
im provem ent s in budget operat ions at t he regional level t o accelerat e t he
pace of developm ent , fast er approvals for regional governm ent budget s,
report ing and use of regional budget expendit ures, im provem ent in legal
cert aint y and harm onisat ion of cent ral governm ent and regional
government regulations.
Support from Fiscal Policy and the Draft 2008 Budget
23. The orient at ion of fiscal policy and draft ing of t he st at e budget are t w o
processes t hat have undergone change. Up t o 2006, policy was orient ed
t oward fiscal consolidat ion, but since t hen has been st eered t owards
delivering an econom ic st im ulus. During 2008, t he governm ent will again
use t he St at e Budget as a st im ulus for econom ic growt h, as indicat ed by
the projected budget deficit at 1.6%- 1.8%.
24. Various policies and im provem ent s will be put in place t o achieve t he
increased revenue t arget s for 2008, in which t he rat io of t ax revenues t o
GDP will be raised t o 13.5% - 14%. To t his end, t he governm ent will t ake
further actions in reform of tax administration, broadening of the tax base
and intensified tax collection.
25. I ncreased cent ral governm ent expendit ures will be com plem ent ed by
im proved qualit y of expendit ures t hrough precise planning, fast er and
m ore effect ive deliberat ion of budget it em s wit h Parliam ent , execut ion of
expendit ures in keeping wit h prudent ial principles, rest rict ion of revisions
t o regional governm ent budget s t o changes in budget assum pt ions and
cases of emergency and a tidy, disciplined reporting system.
26. Concerning t he policy direct ion for regional expendit ures, t he governm ent
will consolidat e t he nat ional budget and regional budget deficit s and
st rengt hen fiscal decent ralisat ion in support of regional aut onom y. I n t his
regard, t he governm ent will work t owards reduct ion in fiscal disparit ies
bet ween t he cent ral and regional levels and am ong t he regions
t hem selves, regional governm ent capacit y building for m axim ising t he
pot ent ial for regional governm ent revenues, phased t ransfer of
deconcent rat ion and assist ance funds designat ed for funding act ivit ies for
which regions are already responsible w it h t he use of Special Allocat ion
Funds and t he rescinding of hold harm less wit h no allocat ion of
adjustments funds to be made during 2008.
27. On t he financing side, t he Governm ent w ill focus on dom est ic sources of
budget financing and other low- cost, low risk sources.
28. I n 2008, t he developm ent of t he Draft Budget will t ake place alongside a
fiscal risk analysis of fact ors likely t o affect achievem ent of t he Draft
Budget t arget s. Fiscal risks t hat m ay arise include t he risk of changes in
assumptions (sensitivity), risk of increased expenditures related to natural
disast ers and ot her event s, risks from governm ent com m it m ent s and
support for infrast ruct ure proj ect s and debt risk influenced by m ovem ent s
in interest rates, the exchange rate and other factors.
29. I n developing t he Draft 2008 Budget , t he governm ent has t aken exist ing
econom ic condit ions int o account and adopt ed t he following underlying
assumptions:
GDP growth at 6.6%- 7.0%
Inflation (y- o- y) at 6.0%- 6.5%
Rupiah in the range of Rp 9,100- 9,400 to the US dollar.
3- month SBI rate at 7.5%- 8.0%
International oil prices at US$57- 60 per barrel
Lifting of Indonesian crude (MBCD) from 1.034 to 1.040 million barrels
per day.
Chief Public Relations Officer
Samsuar Said
NIP 060034705