Sujata Rao

Indonesia's finance minister Sri Mulyani Indrawati arrives at the Fairmont Hotel, in St Andrews to attend a G20 Finance Ministers and Bank Governors Meeting. (Photo: Derek Blair, AFP)

Indonesia Will Continue Fiscal Stimulus, Be ‘Careful’ on Subsidies: Sri Mulyani

St Andrews, Scotland. Indonesia will proceed carefully with raising administered prices of fuel and electricity next year and for now plans to continue with fiscal stimulus for the economy, said Finance Minister Sri Mulyani.

Analysts have advised the government to lift administered prices, including fuel subsidies, which drain state finances. But Finance Minister Sri Mulyani Indrawati said it was too early to say if the subsidies could be cut next year or by how much.

The issue is carefully watched because interest rates are now at a record-low 6.5 percent. Any increase in subsidies could result in inflationary pressures building again.

“The budget gives the room to lift administered prices if deviation from international prices is more than 10 percent,” Sri Mulyani said, speaking on the sidelines of a G-20 summit of finance ministers in St. Andrews.

“We have to be careful that the purchasing power of the people is not eroded. Secondly, we are trying to make sure the adjustment of administered prices is done together with the reform of the electricity sector and [state oil company] Pertamina.”

“The room is there,” she added. “It depends on the movement in international prices.”

The economy is expected to grow 4.3 percent this year. Sri Mulyani said the budget’s forecast for a 5.5 percent expansion in 2010 was achievable.

Despite the rupiah’s appreciation this year, demand for the country’s exports, mostly natural resources, was resilient, with exports likely to grow 5 percent next year after shrinking 11 percent to 15 percent in 2009, Sri Mulyani said. “We are going to continue with all the fiscal stimulus that could substitute for the drop in exports,” she said.

She also said the country could issue a euro bond soon to take advantage of strong demand for emerging market assets.

Asked if the government planned to return to international capital markets before the end of 2009, Sri Mulyani said, “Yes, I think so. The financing environment is quite dynamic for us.”

She declined to say how much could be issued or in what currency, or whether the bonds could be ordinary euro bonds or Islamic-compliant Shariah bonds.



Reuters

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