Indonesia long-term growth target is very ambitious: Djalil

[JAKARTA] Indonesia's economy minister pushed back a target for achieving 7 per cent growth, calling it a "very ambitious" goal.

The government aims to achieve that target in the next five years, Coordinating Minister for Economic Affairs Sofyan Djalil said in an interview at the World Economic Forum in Jakarta on Tuesday. That contrasts with President Joko Widodo's goal of 7 per cent expansion for Southeast Asia's largest economy by 2017.

Mr Widodo, known as Jokowi, came to power in October on a platform of boosting growth at the slowest in five years by cutting red tape, building infrastructure and attracting investment. Jokowi, who told investors at the conference to call him if they had any difficulties, needs foreign funds to curb a persistent current-account deficit that has made the rupiah the region's worst performing currency this year.

"We are still optimistic to reach 5.7 percent this year," Mr Djalil said, referring to the level forecast in the 2015 budget. "But of course, I admit it, there are a lot of headwinds."

The rupiah fell 0.5 per cent on Tuesday amid signs the government is struggling to revive economic growth, which is seen at 5.3 per cent this year according to a median estimate in a Bloomberg survey. Bank Indonesia sees a 5.4 per cent expansion, the bottom end of its target range, as world commodity markets are still declining, its Senior Deputy Governor Mirza Adityaswara said this week. Growth can beat that if the government spends on infrastructure quickly, he said.

"In the past 10 years Indonesia was an 'autopilot' country, and we still grew at 6 percent," Mr Djalil said. Now, the government is "very pro-active," he said, adding that he had just arranged a meeting with Indonesia's information technology minister for an Indian IT investor he had met at the conference.

Jokowi wants to raise budget funds to build ports, roads and railways by lifting tax collection to 16 per cent of gross domestic product, in a country where only 4 million out of 250 million people pay tax, he said in a February interview. That target will require very hard work, Mr Djalil said.

"For an economy like Indonesia we need to collect a minimum of 15 per cent of GDP," Mr Djalil said, adding this year the government expected to increase it from 11 per cent to 12 per cent, or 13 per cent at a maximum. "We don't want to squeeze those who are already paying tax. The policy is intensification, reach out to those who don't pay tax." The government has a "plan B" if it doesn't raise enough budget revenue, Mr Djalil said, without elaborating.

Credit Suisse has widened its forecast for Indonesia's budget deficit this year to 2.4 per cent of GDP, versus the government's 1.9 per cent, because of likely revenue shortfalls from both tax and commodity exports, Santitarn Sathirathai, a Singapore-based economist, said in a note last week.

"Even obtaining the same tax revenue to GDP ratio as last year (10.8 per cent) will be difficult," Mr Sathirathai said. "Some spending cuts are necessary, given the likely material disappointment in revenue."

BLOOMBERG