Aditya Suharmoko , 

The Finance Ministry will cut the allocation to the fiscal risk cushion to Rp 3 trillion (US$324 million) in the revised 2010 state budget down from the original Rp 8.6 trillion, reflecting positive macroeconomic changes.

The fiscal risk cushion is cut because of changes in macroeconomic assumptions including the oil price, inflation and the exchange rate, all of which impact positively to reduce subsidy costs, Finance Minister Sri Mulyani Indrawati said Tuesday at her office.

“The fiscal risk cushion is reduced because the variation between assumptions and realized [assumptions] in 2009 was quite low,” she said. This amount was used as a cushion in case that some macroeconomic assumptions might have changed and affected the budget.

The deviation or variation in macroeconomic assumptions — meaning the difference between assumptions made in the state budget and the realized assumptions — in 2009 was 2.9 percent, 10 percent below earlier estimates. The low deviation in 2009 became the basis for the calculation of this year’s fiscal risk cushion.

Last year the government allocated Rp 15.8 trillion to potential fiscal risk cushion financing, which was then cut to 4.1 trillion because of the low deviation. The remaining 11.7 trillion was used to cover the increasing budget deficit.

In the revised 2010 budget, the government sets the oil price at $77 per barrel, up from $65 per barrel stated originally. The rate of the rupiah to the dollar is also changed to Rp 9,500 up from Rp 10,000 initially.

Mulyani said with an increase in oil prices, the government would receive Rp 24 trillion in additional revenues. “But this is spent on subsidies on fuel and electricity,” she said.

The amount of additional subsidies allocated in the planned revised 2010 budget is Rp 44 trillion —
Rp 20 trillion of which is allocated for fuel, Rp 16.7 trillion for electricity, Rp 4.4 trillion for fertilizer and Rp 2.8 trillion for subsidized foods, the minister said last week.

The subsidies will be financed by the 2009 budget surplus of Rp 38 trillion, and additional loans of
Rp 1.2 trillion, she added.

President Susilo Bambang Yudhoyono said he expects total state expenditure to reach Rp 2,000 trillion by 2014.

In the planned revised 2010 budget total state expenditure is set to rise to Rp 1,107 trillion, up from
Rp 1,047.7 trillion in the originally proposed budget.

“Five years ago the state budget total amount was Rp 500 trillion, and now it reaches Rp 1,000 trillion.

I am sure if there is no disruption [of these economic trends] it can reach Rp 2,000 trillion by 2014,” the President said speaking to the Indonesian Young Entrepreneurs Association (Hipmi).

Yudhoyono also said that business sectors to be prioritized in the next five years should include food, energy, infrastructure, transportation, information technology, trade, tourism and services.

Hipmi Chairman Erwin Aksa said young entrepreneurs would strive to compete with businesses from China and India, two of Asia’s most rapidly developing economies.