December 30, 2008 / 10:55 AM / 11 years ago

UPDATE 3-Indonesia to announce $1 bln growth package-minister

(Adds details, background)

By Adriana Nina Kusuma and Karima Anjani

JAKARTA, Dec 30 (Reuters) - Indonesia will announce a 12.5 trillion rupiah ($1.14 billion) package early next year to help Southeast Asia’s biggest economy withstand a slowdown in global economic growth, the finance minister said on Tuesday.

The commodity-producing nation has been hit by the world financial crisis: demand for its commodities, including palm oil and copper, has faltered, the rupiah currency IDR= fell to a decade low against the dollar, and the stock exchange was forced to shut for three days in October after stock prices plummeted.

The finance minister, Sri Mulyani Indrawati, told reporters that economic growth in 2009, an election year in Indonesia, would be 5 percent, the mid-point of the government’s previous forecast range.

That would represent a slowdown from 2007, when the economy expanded at a decade-high 6.3 percent, and from 2008, when the government expects growth of about 6 percent.

But with parliamentary and presidential elections in 2009, domestic consumption could get a boost, she said.

Typically, political parties in Indonesia splash out on gifts such as food and clothes for voters, as well as spending on their advertising campaigns.

“2009 is a political year, and that could be a blessing for us. As the president has said, an election helps economic activity in a way, due to spending by political parties,” Indrawati said, adding that the voters would also have more spending power as commodity prices fall, inflationary pressures subside, and interest rates drop.

Governments worldwide have announced various measures to try to spur economic growth. After several rounds of rate cuts by central banks, governments have announced spending packages to cushion their economies from the worst global downturn in decades.

Indonesia said earlier this month it would spend about $9 billion on infrastructure projects to boost growth. Analysts have said the economy needs to grow around 6 percent to create new jobs for a rapidly growing population in the world’s fourth-most populous country.

“The threat in 2009 will be lay-offs. So we will see the impact on industries,” she said, adding that the government package would take into account ways to “compensate the industries which have been hard-hit by the global crisis.”

She said unemployment was currently around 8.5 percent.

“Investment activity in various projects will still continue, because there is no reason for a sudden shutdown,” said Indrawati, adding that loan growth is “still strong.”

Indrawati said inflation next year would be about 6 percent, at the lower end of the government’s forecast range, due to falling commodity prices. ($1=10,975 Rupiah) (Writing by Tyagita Silka and Sonya Angraini; Editing by Sara Webb/editing by Tony Austin)

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