Police carry an injured man from a demonstration protesting against the government's plans to raise fuel price in Medan, Indonesia, June 18, 2013. Protests erupted in several cities after the parliament approved to raise the fuel price on Monday. (Xinhua File Photo)
By Abu Hanifah
JAKARTA, June 19 (Xinhua) -- The Indonesian government remains confident that it can achieve its target of 6.3 percent growth this year despite the scheduled implementation of the unpopular fuel price hike.
The oil price increase is designed to plug the budget deficit this year which could reach 2.4 percent from initial assumption of 1.6 percent.
On Wednesday, the Indonesian Parliament approved the government' s revised national budget for this year that included the fuel price hike.
The move by the Parliament was met by strong protest actions by students and workers in several cities in the country. As approved by the legislators, the government would increase the price of subsidized fuel to 6,500 rupiah (about 66 U.S. cent dollars) for gasoline and 5,500 rupiah (about 55 U.S. cent dollars) for diesel fuel.
The plan to increase the price of fuel was initiated last year but this was shelved after a massive protest by students in April last year resulted in violence.
The government's optimism on Indonesia's continued growth was based on several programs for the poor aimed at preserving their purchasing power to maintain domestic demand, which is the key to continued economic growth. During the past few years, the Indonesian economy grew by not less than 6 percent, among the fastest in the region.
The Indonesian government is expected to formally announce the fuel price hike after the 2013 budget is finally signed into law. An increase in the price of subsidized fuel is expected to trigger a similar increase in transport fees and in the prices of basic commodities. It will also result in higher inflation rate.
The government has increased its inflation target to 7.2 percent this year from its initial forecast of 5.5 percent. As part of its safety net, the government has approved several programs for the poor that include the giving of direct cash allowance and rice allowance to them.
The government would also implement infrastructure projects in rural areas to provide employment to those affected by the fuel price hike.
For the direct cash allowance program, the government has allocated some 3 billion U.S. dollars for four months, to be disbursed twice. This will be distributed to some 15.5 million poor families who would receive 300,000 rupiah (some 30.2 U.S. dollars) every two months. "This measure is very important to cushion the pressure from inflation. Domestic consumption is a key factor in our GDP (Gross Domestic Product) as it accounts for 55 percent," Finance Minister Chatib Basri said on Tuesday.
With massive spending related to the conduct of the general elections next year, Basri is optimistic that Indonesia would be able to realize its growth target this year despite pressure from fuel price hike policy.
Head of Fiscal Management at the Finance Ministry Bambang Brodjonegoro said that besides strong domestic demands, the country's growth would also depend on external factors in the coming quarters.
In the first quarter, Indonesia posted a 6.02 percent growth amid the continued slowdown in the global economy.
According to Brodjonegoro, contributors to the country's growth target this year would consist of household consumption at 5 percent, government spending at 6.7 percent, investments at 6.9 percent, exports at 6.6 percent and imports at 6.1 percent.