VZCZCXRO4826
PP RUEHLMC
DE RUEHJA #1295/01 2170247
ZNR UUUUU ZZH
P 050247Z AUG 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 2995
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP PRIORITY 0134
RUEAIIA/CIA WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 JAKARTA 001295 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MTS, E, AND EEB/IFD 
TREASURY FOR TRINA RAND 
MCC FOR ISMAIL 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PTER ID
SUBJECT: YUDHOYONO'S 2010 BUDGET PROPOSAL: MAINTAINING A 
STEADY COURSE 
 
¶1. (SBU) Summary:  Indonesian President Yudhoyono ("SBY") 
presented a 2010 budget bill aimed at maintaining a steady 
course.  SBY highlighted Indonesia's success in weathering 
the current global downturn, building a stronger, more 
self-reliant domestic economy and taking a place at the G-20 
table.  The budget bill reflects his "Continue!" campaign 
theme, with no significant course changes.  Key priorities 
include economic growth and people's welfare, equitable 
development, clean governance, and bureaucratic and 
educational reform.  The bill proposes a budget deficit equal 
to 1.6 percent of GDP and a modest fiscal stimulus to counter 
effects of the global economic downturn.  A proposal to 
increase defense spending by about IDR 7 trillion (USD 700 
million) was the most notable addition.  Market analysts 
welcomed the budget bill's shrinking public debt-to-GDP 
ratio, decreased dependence on external financing and plans 
to develop needed infrastructure.  End summary. 
 
... STRONGER POSTURE, MORE SELF-CONFIDENT ... 
 
¶2. (SBU)  President Yudhoyono presented his budget proposal 
to Parliament in an extraordinary plenary session on August 
¶3.  SBY spoke before a nearly full chamber, with 467 of 550 
members of the lower house in attendance.  Presentation of 
the budget bill, typically included in the State of the 
Nation address (scheduled for August 14), was moved up so 
that the current Parliament can complete deliberations before 
its session ends September 30.  SBY highlighted his 
government's achievements in reducing poverty and 
unemployment and countered campaign criticism of higher 
government debt levels by stressing his government's success 
in significantly reducing government debt as a share of GDP 
(from 57 percent in 2004 to a planned 30 percent in 2010). 
 
¶3. (SBU)  The audience responded with enthusiastic applause 
to several points in Yudhoyono's speech.  Legislators were 
happy to hear his announcement that Indonesia has the third 
highest economic growth rate after China and India and had 
recorded its lowest inflation rate since 2000 (with inflation 
of 2.71 percent year-on-year through July 2009).  They also 
responded positively when he proposed a 5 percent increase in 
civil service basic salaries and pensions and recommended a 
moratorium on further creation of new regions.  Strong 
applause welcomed his statement that the government would not 
seek IMF financing of the budget deficit, but had secured 
other non-IMF contingency financing and planned to focus on 
greater domestic financing to reduce Indonesia's dependence 
on foreign creditors.  SBY's appeal to the people of 
Indonesia "to face the future with a stronger posture, more 
self-confident, and to work even harder in reaching the 
common ideals" mirrored his own attitude in meeting the 
challenges of the next five years. 
 
BUDGET PRIORITIES: NATIONAL ECONOMIC RECOVERY AND MAINTENANCE 
OF THE PEOPLE'S WELFARE 
 
¶4. (U) SBY outlined the five national development program 
agendas for the government's 2010 work plan:  maintenance of 
the people's welfare; enhancement of human resources quality; 
reinforcement of bureaucratic and legal reforms and 
consolidation of democracy and national security; recovery of 
the economy sustained by agriculture, infrastructure and 
energy development; and improvement of the quality of natural 
resources management and the capacity of climate change 
mitigation.  He noted the government and Parliament had 
agreed on basic macroeconomic assumptions for 2010, including 
targeting economic growth of about 5 percent, inflation of 5 
percent, average rupiah:US dollar exchange rate of IDR 
10,000/1 USD, average 3-month Bank Indonesia Certificate 
interest rate of 6.5 percent, an Indonesia crude oil price of 
USD 60/barrel, and a crude oil lifting target of 965,000 
barrels/day. 
 
¶5. (U) The government proposed a 2010 budget deficit equal to 
about 1.6 percent of GDP (IDR 98 trillion), considerably 
lower than the 2009 targeted budget deficit of 2.5 percent of 
GDP.  Expenditures are projected to total IDR 1,009.5 
trillion (up 0.4 percent over 2009), while revenue and grants 
are slated to reach IDR 911.5 trillion.  Tax revenue is 
targeted to reach IDR 729.2 trillion and non-tax state 
revenue is targeted for IDR 180.9 trillion.  The bill 
proposes that the central government budget be allocated IDR 
699.7 trillion, while the budget allocated for transfer to 
the regions to support achievement of fiscal decentralization 
is slated to total IDR 309.8 trillion.  SBY said the 
 
JAKARTA 00001295  002 OF 003 
 
 
government intended to continue to apply a financial stimulus 
package and countercyclical budget policy to maintain 
people's purchasing power, to safeguard the resiliency of the 
business sector, to create jobs and to absorb the impact of 
layoffs through development of labor-intensive 
infrastructure. 
 
¶6. (U) President Yudhoyono said the government remained 
committed to providing a social security net for the poor and 
to maintaining food and energy security in the face of 
anticipated impacts of an El Nino weather pattern likely to 
cause drought in late 2009 and early 2010.  By targeting IDR 
37 trillion for maintenance of people's welfare and IDR 51.2 
trillion to improving the quality of Indonesian's human 
resources, the government intends to lower the poverty rate 
from 14.15 percent currently to 12 to 13.5 percent and 
improve access to quality basic education for all children 
aged 7 to 15 years of age.  President Yudhoyono also pledged 
to maintain an education budget equal to a minimum of 20 
percent of the state budget. 
 
¶7. (U) The government also proposed allocating IDR 18.1 
trillion to support bureaucratic and legal reform and the 
consolidation of democracy and national security.  These 
resources will target improving the performance of government 
bureaucracy, increasing legal certainty, reducing commission 
of criminal corrupt acts, improving effective implementation 
of civil society organizations and political parties, 
improving national security to sustain social and economic 
activities, and enhancing capacity of regional governments. 
IDR 61.2 trillion would support an economic recovery 
sustained by development of agriculture, infrastructure and 
energy.  The government will work towards achieving economic 
growth of between 4 and 4.5 percent in 2009 and at least 5 
percent in 2010, while maintaining macroeconomic stability as 
a prerequisite for sustainable economic development.  To 
reach these targets, SBY said his government would create an 
improved investment climate, seek more balanced growth, 
increase the availability of appropriate and quality 
infrastructure and encourage public-private partnership to 
finance infrastructure investment. 
 
¶8. (U) To enhance the quality of natural resources management 
and improve the capacity of climate change mitigation, the 
government proposes to allocate IDR 4.3 trillion.  These 
funds would support rehabilitation and conservation of 
forests, the fight against illegal logging, sustainable 
mining practices and pollution control, and improved 
management of maritime resources. 
 
. . .AND AN INCREASED DEFENSE BUDGET. . . 
 
¶9. (U) Perhaps the most significant addition to the budget 
was the government's proposal for the Department of Defense 
to receive a budget allocation of IDR 40.7 trillion (up from 
IDR 33.6 trillion in 2009), with the 20 percent increase to 
provide additional funding for operation, maintenance and 
procurement of the Indonesian Armed Forces' main weaponry 
systems.  The defense budget had become an issue during the 
presidential election campaign in the wake of a string of 
military aviation accidents which resulted in a significant 
number of fatalities.  The proposed hike remains far below 
the Department of Defense's desired budget increase. 
 
SUBSIDIES TO CONTINUE, BUT GOVERNMENT TO IMPROVE TARGETING 
 
¶10. (U) President Yudhoyono advised that the budget 
allocation for subsidies (including food, fuel, electricity, 
fertilizer and seeds) in 2010 would reach IDR 144.4 trillion, 
constituting 14.3 percent of the budget (and down from 
projected subsidies of IDR 160 trillion in 2009).  While he 
argued subsidies were still needed to alleviate the burdens 
on the most vulnerable segments of the population, 
particularly in the face of the current global economic 
crisis, he said the government would work to improve the 
targeting of such subsidies over the medium-term to ensure 
they are received by households which truly need them. 
 
THE SPEAKER ADDRESSES JULY 17 BOMBINGS 
 
¶11. (SBU) While President Yudhoyono did not raise the July 17 
attacks in this budget speech, parliamentary speaker Agung 
Laksono addressed the issue in his opening remarks.  Laksono 
strongly condemned the attacks, which he said had shaken 
Indonesia's image as a safe, peaceful, democratic country. 
 
JAKARTA 00001295  003 OF 003 
 
 
He called for the police to take quick action to capture 
those involved and called for Indonesians to unite to enhance 
vigilance against terrorism and groups acting in an 
irresponsible manner. 
HUME