UPDATE 3-Indonesia's president plans stimulus for economy

(Rewrites throughout, adds quotes from president)

JAKARTA, Dec 31 (Reuters) - Indonesia’s president promised further fiscal stimulus to help Southeast Asia’s biggest economy withstand the global economic slump, and which may be funded in part by a return to the international bond market next year.

President Susilo Bambang Yudhoyono, who faces elections in 2009, said the government would give priority to jobs and inflation, cut subsidised fuel prices further, and launch a new fiscal stimulus on top of spending plans set in the state budget.

“We have set the budget deficit for the 2009 state budget and if there is a stimulus package on top of that, there will not be any difficulties” in financing it, Yudhoyono told a press conference on Wednesday evening.

“So no worries on how to cover it. The budget is there.”

Finance Minister Sri Mulyani Indrawati attended the press conference with the president, but did not make any further comments on the planned stimulus measures.

Yudhoyono was elected in 2004 on promises to boost growth, create jobs, and tackle graft -- issues which will be high on the agenda when Indonesia holds parliamentary and presidential elections in 2009.

The government hopes new spending and investment will support economic growth that has fallen off a decade peak of 6.3 percent in 2007.

Indonesia’s economy is still expanding, but growth may drop below the 6 percent pace that analysts say is needed to prevent unemployment from rising among its 226 million people.

Unemployment is officially 8.5 percent, but the figure includes those who work only a few hours a week.

President Yudhoyono said growth this year would be about 6 percent, and would be above 4.5 percent in 2009. On Tuesday, Finance Minister Indrawati said she expected economic growth to slow to 5 percent in 2009.

She also said the government would announce a 12.5 trillion rupiah ($1.14 billion) spending plan for next year including support to industries hit by the global economic slump.


Indonesia has already said it would spend about $9 billion on infrastructure projects to boost the economy, though it is not clear how much of it would be new spending and how much would be financed by funds unused this year and carried over to 2009.

Governments across the industrialised world have announced plans to spend hundreds of billions of dollars to pull their economies out of recession.

Earlier on Wednesday, a senior finance ministry official said the government aims to issue global bonds next year after the global financial crisis forced it to put conventional and Islamic debt issues on hold.

“We are scheduling issuance in 2009, but we don’t know the timing yet,” said Rahmat Waluyanto, Treasury Director General.

The government is also hoping that demand in a huge domestic market will help to drive growth, particularly if inflationary pressures subside and interest rates fall.

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

Election year spending usually provides the economy with a boost and Indrawati said it could be a “blessing” in 2009.

The central bank cut its key BI interest rate BIPG by 25 basis points to 9.25 percent early this month in its first easing in a year. Its next policy meeting is scheduled for Jan. 7.

Indonesia, a major producer of commodities ranging from palm oil to copper, has been hit by the world financial crisis as investors bolted from emerging markets and demand for commodities cooled.

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 shares plummeted. ($1=10,975 Rupiah) (Additional reporting by Tyagita Silka, Dicky Kristanto, and Aloysius Bhui in Jakarta; Writing by Sara Webb; Editing by Tony Austin)