Bare-bones budget<\/p>\n
The draft state budget for the 1998\/1999 fiscal year beginning
\nin April will have a contractive impact on the domestic market as
\ngovernment investment will decline in real terms by about 5
\npercent, while most of the 48.6 percent increase in the operating
\nbudget will go to servicing the foreign debts. Such a tight
\nbudget, already predictable in view of the financial crisis, will
\nmake this year a very tough one since the private sector -- which
\nhas since the early 1990s become the engine of economic growth --
\nwill likely remain depressed at least for the next 12 months.<\/p>\n
The budget proposal, unveiled by President Soeharto to the
\nHouse of Representatives last night, still projects a 32.1
\npercent increase in total volume which is envisaged to balance at
\nRp 133.49 trillion (US$19 billion at Rp 7,000 per U.S. dollar).
\nThis projection, we think, is too optimistic.<\/p>\n
True, oil and natural gas tax receipts are realistically
\nprojected to increase by 83.5 percent to Rp 27.28 trillion,
\nassuming a 1.5-million-barrel average daily production, including
\ngas condensate, and an average export price of $17 per barrel.
\nForeign loans are estimated to increase 98.1 percent to Rp 25.8
\ntrillion, including Rp 6.8 trillion in quickly disbursed aid from
\nthe World Bank, the International Monetary Fund and the Asian
\nDevelopment Bank.<\/p>\n
But the projection of only a 9.5 percent decline in income tax
\nreceipts and a 13.1 percent rise in value-added tax receipts
\nseems highly optimistic, given the battered condition of most
\nbusinesses and the huge losses incurred by many big enterprises
\nas a result of the rupiah's steep depreciation. This could signal
\nexcessively aggressive tax collection and audits which would
\nscare businesspeople.<\/p>\n
The budget proposal projects a 4 percent growth in the gross
\ndomestic product. This is also too optimistic because the state
\nbudget will contract domestic demand, while private sector
\ninvestments, which used to make up more than 75 percent of the
\nnation's investments, will likely remain weak throughout the
\nyear.<\/p>\n
The 48.6 percent increase envisaged in the operating budget
\nwill be negligible in terms of its impact on domestic consumption
\nsince nearly 50 percent of the spending will go to servicing
\nforeign debts (Rp 30.24 trillion) and to subsidizing oil,
\nfertilizer and food prices (Rp 15.3 trillion). Moreover, almost
\n50 percent of domestic revenues will be derived from taxes,
\nexcise duties and levies taken out of the taxpayers' pockets. Our
\nfull sympathy should go to government employees and Armed Forces
\npersonnel who will have to make sacrifices since they are not
\nslated to receive a pay raise.<\/p>\n
The budget's projection of only a 9 percent inflation rate for
\nthe next fiscal year also is not realistic despite large
\nappropriations for oil and food price subsidies. This could
\nprovide a wrong signal to both the business community and
\nconsumers. We think the government should bite the bullet and
\nraise the prices of wheatflour, electricity and oil as part of
\nthe painful adjustments needed to face the dire economic
\nsituation.<\/p>\n
But the most questionable aspect of the budget is the
\ngovernment's assumption that the rupiah's rate against the dollar
\nwill average 4,000 between April, 1998 and March, 1999 --
\ncompared to yesterday's rate of more than 7,000. This projection
\nseems too high because non-oil exports are projected to increase
\nonly 13 percent to $49.25 billion, while oil exports are
\nestimated to decline 19 percent to $5.3 billion and natural gas
\nexports to increase 4.3 percent to $4.8 billion.<\/p>\n
The bright side of the budget is the allocation of Rp 10
\ntrillion, or 45 percent of total government investment, to
\nlocally administered development projects in the provinces which
\nare usually labor intensive. This allocation could serve as a
\nsocial safety net for job seekers in rural areas.<\/p>\n
All in all, the bare-bones budget is a realistic one, as
\npromised by President Soeharto last month, except for seemingly
\ntoo optimistic projections for revenues and the rupiah rate. But
\nthe question remains whether the budget will provide the right
\nsignal to the market or not. That, we think, will depend on
\nwhether the budget will be enforced with a great sense of
\nefficiency, frugality and accountability.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bare-bones-budget-1447893297",
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