Jakarta (The Jakarta Post/ANN) - Indonesia will opt for a "more realistic" economic growth target for the next fiscal year as the country prepares for a prolonged economic crisis in the eurozone and its consequent impact on trade and investment, says Deputy Finance Minister Mahendra Siregar.
Siregar, who also serves as Indonesia's G20 sherpa, said that regardless of the progress made by European policy makers, Indonesia would have to assume that the crisis in the bloc of 27 economies would persist.
"We need to make an assumption that the crisis in that region is long term so that we can avoid being trapped in the uncertainties of European economic development," Siregar told reporters.
He said that based on ongoing discussions with the House of Representatives, the government was likely to set a 6.8 per cent economic growth level in the 2013 state budget.
"The initial target was set between 6.8 per cent and 7.2 per cent. But by looking at the current developments [in Europe] we believe it will be more realistic to target the lower limit of 6.8 per cent of growth," Siregar said.
This year the government has targeted 6.5 per cent economic growth, well over the forecast of the International Monetary Fund, which was 6.1 per cent.
Assuming that the Europe-led global economic crisis will persist, the World Bank has revised down its annual economic growth forecast for Indonesia from 6.2 per cent to 6 per cent. The development agency also calculates a 6.4 per cent economic growth rate for Indonesia next year.
The World Bank said that the government should immediately redirect its spending to capital and social expenditures, instead of "unproductive" fuel subsidies, to support the economy and protect the poor in the event of a crisis.
Despite the lower growth prediction, World Bank managing director Sri Mulayani Indrawati said during her visit to Jakarta late last month that Indonesia's economic performance was a "luxury" compared to other global economies.
Siregar said investment and strong domestic consumption would remain the main drivers of growth next year, with household consumption expected to grow between 4.8 per cent and 5.2 per cent.
The single biggest spender, the government, plans to raise its expenditures by between 6.7 per cent and 7.1 per cent next year, Siregar said.
The Investment Coordinating Board (BKPM) says that investment will reach 390.3 trillion rupiah (US$ 41.3 billion) in 2013, up from 290 trillion rupiah expected for this year.
Foreign direct investment (FDI) reached an all-time high in the second quarter of this year at Rp 56.1 trillion, up by 30.2 per cent from 39.5 trillion rupiah in the same period last year. FDI made up 70 per cent of the total realised investment in the country for the given period, which stood at 79.6 trillion rupiah.
BKPM investment monitoring deputy Azhar Lubis said on Friday that high investment growth would compensate for a weak trade performance and three consecutive months of trade deficits.
The deficit stood at $1.33 billion in June, the widest in five years according to the BPS.