2008-2009 DATA CONSULT. All rights reserved.
July  2009



Toward the end of his present administration President Susilo Bambang Yudhoyono (SBY) prepares a draft state budget (RAPBN). It is a transitional bill to be implemented by the new government after the last presidential election. The new government is to start work after the president elect, the incumbent, will be officially installed in October 2009. No wonder the draft state budget is relatively conservative. One important target attracting attention is that the economy is projected to expand only 5% for 2010 or an increase of only 0.5 percentage point from 2009's target of 4.5%.

Given the success of the country in weathering the global financial crisis in 2008-2009, the government is expected to be a little more optimistic and will set more ambitious economic targets. Most economists believe the world economy would begin a rebound in 2010 as there are already strong signs of recovery. Even the international communities have shown greater confidence in the country's economic stability marked with share price hikes and rupiah strengthening toward the end of the first half of 2009. It is not too ambitious if the government has set the economic growth target at 6% for 2010.

It seems the SBY government did not want to look too ambitious. Stronger support from the House of Representatives would be needed  if the government proposes an ambitious  bill  that carries higher risks  especially at a time when the House dominated by rival parties  - the Indonesian Democratic Party of Struggle of Megawati Soekarnoputri  and Golkar under  Vice President Jusuf Kalla, who has challenged his own boss,  will end its  2004-2009 term.   By proposing a conservative bill but more realistic, the SBY government hopes it would not need to waste much energy in the parliamentary debates to get the   draft state budget through.

The SBY's Democratic Party led in the legislative election earlier this year and in coalition with a number of smaller parties -- PKS, PAN, PPP and PKB - the new government would enjoy support from a strong majority in the House for the next five years 2009-2014.  The new government, therefore, is expected to be ready to come up with a more ambitious bill. Meanwhile, there will be greater certainty about the global economic trend, allowing the government to propose revisions of economic targets if needed.

Macro economic targets in Draft State Budget

Other economic targets set in the 2010 draft state budget  included inflation set at 5% , rupiah value  set at 10,000 per US dollar,  Bank Indonesia key interest rate (SBI)  at 6.5% , price of Indonesian crude oil in international market at US$60 per barrel  and oil lifting at 965,000 barrels per day.

The SBI rate is already level with the target, even there is more room for further cut.  The inflation target is quite realistic. Among the targets, the most elusive is the crude oil price. If the world's economy fully recovers in 2010, the oil prices are forecast to average more than US$ 70 per barrel.

State expenditures set at Rp 1,009 trillion in 2010

Based on the assumptions used to calculate the draft state budget   and the priorities set by the government,  the state  expenditures  in 2010 will reach Rp 1,009.5 trillion  or an increase of Rp 3.8 trillion   from the revised state budget  (APBN) for 2009.  With state income and grant target  set  Rp. 911.5 trillion  there will be a deficit of Rp 98 trillion  in 2010 or 1.6%  of the country's Gross Domestic Product (GDP).

Revenues in taxes are estimated at Rp 729 trillion  and non tax revenues at  Rp181 trillion. Other income include grants The government plans to issue bonds   and other promissory notes  totaling Rp104 trillion to bridge the Rp98 trillion  deficit.

Foreign financing in the form of loan is projected at Rp 57.6 trillion, but  debt servicing  is till larger  estimated at Rp 58.8 trillion . Including resumption of loan of Rp 8.6 trillion , the total foreign financing  will be minus Rp9.9 trillion .
Increase recorded only in defense budget

In the 2010 draft state budget , the spending by the central government is set at Rp699.7 trillion and the spending by all state ministries/agencies  totals Rp327.6 trillion,  or an increase of only Rp10.6 trillion  from the 2009's spending  target.

Increase is only for the defense budget - up from Rp 32.8 trillion to Rp 40.7 trillion. The budget for the public works ministry even declines from Rp 39 trillion   to Rp34 trillion 

There are seven ministries/state agencies to receive relatively large budgets as set in the 2010 bill as shown in the following table.

Table - 3
Seven ministries/agencies receiving large budgets for 2010
       (Rp trillion)
Ministries                        Revised APBNP 2009        RAPBN 2010
Education Ministry                          60,3                        51,8
Defense Ministry                        32,8                        40,7
Public Works Ministry                39,1                        34,3
Religious Affairs Ministry                25,1                        26,0
State Police                                24,6                        25,8
Health Ministry                        18,9                        20,8
Transport Ministry                        18,6                        16,0
Source: RAPBN 2010

Priority in the allocation of budget  in 2010 is also given to personnel expenses, subsidies , debt interest payment and goods expenses.  In the 2010  bill , allocation for personnel expenses  is projected at Rp161.7 trillion  or an increase  of Rp28 trillion (21%)  from the 2009 target.

Subsidies down

Meanwhile the subsidy budget  is set at  Rp144.4 trillion in 2010, or 14.3% of the total; state budget.  The budget is smaller than it is projected  for 2009.  The largest subsidy is still for energy  totaling Rp 99.4 trillion  including BBM subsidy making up Rp 59 trillion   and electricity subsidy making up Rp 40.4 trillion .

Subsidies on  energy decline  substantially  from Rp 57 trillion  in 2009  to Rp 44 trillion. Declines  are set for fertilizer subsidy from Rp 18 trillion   to  Rp11 trillion  and tax subsidy   from Rp18 trillion   in  2009  to Rp13 trillion   in 2010.


With realistic and moderate economic targets, there will be no much debate expected over the 2010 budget bill. Many would not be happy with the draft budget as it reflects less commitment shown by the government to stimulate economic growth, but it will at least not trigger long polemics. 

Indeed the RAPBN gives no positive sentiment to the market, but the market will be well aware that the government is just taking safe steps for a safe passage of the transitional budget.

The real RAPBN is expected to come after the new government as a result of the recent presidential election officially take charge. Certainly  the  people  would not  expect to see a strongly legitimate government  hesitates to  act   and  tend  to take a safe way to evade controversies.

After being  officially installed  president for another term, SBY should  be ready to take as bold step  to deliver the goods . Indonesia has  a beneficial position  amid the crisis that rocks the entire world.  Indonesia  has gained the market confidence  that a number of economic indicators  have remained  positive  with rising  composite share price index  and  rupiah value and low inflation . If the condition  could be managed  properly Indonesia could expect  to move faster ahead  when the condition in the world  becomes  favorable.  Rival countries in this region  are still struggling  to cope with economic contraction that would discourage foreign investors.  If  the government  could  fully capitalize on the  condition , Indonesia  could  be the  front runner in economic  development.

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Related Topics

ICN - July  2009

  • Macro economic targets in Draft State Budget
  • State expenditures set at Rp 1,009 trillion in 2010
  • Increase recorded only in defense budget
  • Subsidies down
  • Conclusion

  • Current Issue
  • Oil reserves dwindling
  • Central Sumatra holds the largest reserves
  • Saudi Arabia Saudi has the world largest oil reserves
  • Explorations decline in 2008
  • Crude oil production on the decline
  • Lifting fluctuating
  • Some producers report decline in production        
  • Chevron Pacific Indonesia the largest producer
  • Profile of producers
  • World oil production stagnant
  • Exports falling
  • Imports        
  • Consumption down
  • Oil price picking up in 2009
  • Government offers new blocks        
  • Several block nearing end of contract
  • Prospects and Conclusion

  • No standard required for lube oil
  • Producers of lube oil base in Indonesia
  • Lube oil blending plant
  • Producers of lubricant oil cooperate with automotive producers
  • Cooperation with workshops
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