Indonesia's economic growth is likely to be slower than expected next year and the budget deficit may widen if oil prices are at $100 a barrel, the finance minister said on Tuesday.
Southeast Asia's largest economy may expand by 6.4-6.7 percent next year, lower than the budget forecast of 6.8 percent, and the budget deficit may increase to 1.8 percent of GDP from 1.3 percent this year, Sri Mulyani Indrawati told reporters.
But the government is holding its inflation forecast for next year at around 5 percent, despite the expected revision in other indicators. "If the oil price stubbornly stays at $100 a barrel, our budget deficit will increase to 75.9 trillion rupiah ($8.07 billion) from an earlier estimate of 73.3 trillion, or 1.8 percent of GDP," Indrawati told a news conference.
"Our economic growth might slow down to 6.4-6.7 percent." Indonesia's economy grew faster than expected in annual terms in the third quarter and is on track for its fastest full-year expansion in more than a decade thanks to strong commodity exports and falling interest rates.
The economy grew 6.5 percent in July-September from a year earlier, suggesting the economy is on track to meet the government's 6.3 percent 2007 target, which would be the fastest expansion since 1996 when it grew 7.8 percent. The economy grew 5.5 percent in 2006.
Sri Mulyani said energy subsidies are estimated to reach 88.2 trillion rupiah this year, far higher than 55.6 trillion rupiah allocated in the 2007 budget. Indonesia's chief economic minister Budiono said the government will takes steps to help reduce the subsidy.
Rising global oil prices have caused the fuel subsidy bill in Indonesia, Asia Pacific's only member of the Organisation of Petroleum Exporting Countries (Opec), to balloon, with some officials warning it could hit 90 trillion rupiah this year if prices reach $100 a barrel.
Indonesia's ageing wells and lack of investment in the energy sector have pushed the country to become a net crude oil importer, although it is still a net energy exporter, thanks to a huge supply of natural gas and coal. Jakarta increased fuel prices sharply in October 2005 to cut crippling energy subsidies, but they are still among the cheapest in the world.
Price increases are a sensitive issue in Indonesia, Opec's second-smallest producer. In May 1998, a big rise in fuel prices triggered rioting that helped topple former President Suharto. US oil fell more than a dollar to $96.64 a barrel on Tuesday after trading as high as $99.11 a day earlier, on expectations Opec may increase output to help stem a record rally that has sent prices near $100 a barrel.
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