Budget deficit could exceed 5% of GDP: Rizal<\/p>\n
JAKARTA (JP): Coordinating Minister for the Economy Rizal
\nRamli warned on Wednesday that the 2001 state budget deficit
\ncould widen to more than 5 percent of gross domestic product
\n(GDP) from the initial estimate of 3.7 percent of GDP, unless
\nmeasures were taken immediately.<\/p>\n
Rizal said that more concerted efforts must be made to achieve
\nthe domestic tax revenue target and push the privatization
\nprogram in order to prevent the budget gap from widening.<\/p>\n
"It (the deficit) could be more than 5 percent of GDP if we
\ndon't do anything," he added in remarks that reinforced a similar
\nwarning made earlier on Tuesday by Minister of Finance Prijadi
\nPraptosuhardjo.<\/p>\n
Prijadi warned of a greater deficit this fiscal year due to
\nthe weakening of the rupiah, rising interest rates, a delay in
\nthe collection of certain taxes and the postponement in some
\nsectors of the planned fuel price increase.<\/p>\n
The deficit in the current state budget is projected at more
\nthan Rp 52 trillion (US$5 billion), particularly because of the
\nhuge costs of servicing domestic and foreign debts and
\nsubsidizing fuel prices.<\/p>\n
A deficit as large as 5 percent of GDP or more than Rp 72
\ntrillion would have various damaging consequences on investor
\nconfidence, key economic programs and macroeconomic stability,
\nanalysts have cautioned.<\/p>\n
"But we'll intensify tax collection ... We'll also find ways
\nto cut spending," Rizal added.<\/p>\n
Domestic tax revenue this year is targeted at Rp 179.9
\ntrillion, compared with total domestic revenue of around Rp 263
\ntrillion.<\/p>\n
But most analysts are increasingly concerned that the
\ngovernment could miss the tax revenue target after it canceled
\nplans to impose value added tax at 10 percent on agricultural
\nproducts, import duty and luxury tax on Batam Island and income
\ntax on the central bank.<\/p>\n
Some analysts worry that aggressive tax collection could
\nbackfire as such a drive would discourage consumption and limit
\nnew investment, thereby stifling economic growth.<\/p>\n
The country's macroeconomic condition has been worsening after
\nthe rupiah dropped last month to a 30-month low of around Rp
\n11,500 per U.S. dollar and interest rates continued to increase.<\/p>\n
The rupiah has been weakened partly by domestic political
\nproblems and the standoff between the government and the
\nInternational Monetary Fund (IMF) and adversarial relations
\nbetween the President and the House of Representatives.<\/p>\n
But relations with the IMF now seem to be improving.<\/p>\n
The rupiah ended trading on Wednesday at Rp 10,600 per dollar
\ncompared with Rp 10,450 on Tuesday. The current state budget
\nassumes an average exchange rate of Rp 7,800 per dollar.<\/p>\n
The benchmark interest rate of Bank Indonesia (BI) one-month
\npromissory notes increased again to 15.79 percent on Wednesday
\nfrom 15.58 percent the previous week.<\/p>\n
BI has steadily raised the interest rate since January to help
\ndefend the ailing rupiah and check inflationary pressures caused
\nby the weakening currency and rising cost of imports.<\/p>\n
The state budget assumes an SBI rate of 11.50 percent.<\/p>\n
Prijadi has said that a 1 percent increase in the SBI rate
\ncould create an additional Rp 2.5 trillion in the interest cost
\nof the government's bank recapitalization bonds.<\/p>\n
About two thirds of the Rp 435 trillion recapitalization bonds
\nbear an interest rate that floats on the SBI rate.<\/p>\n
Meanwhile, noted economist Sri Mulyani dismissed suggestions
\nthat the government would be forced to cut the salary of
\ngovernment employees due to the increased budget deficit.<\/p>\n
She said that such a move was unlikely because it would be
\npolitically suicidal.<\/p>\n
However, Sri said that it would be possible for the government
\nto cut other spending items. This includes deferring the
\nreimbursement of fuel subsidies to the state-owned oil and gas
\ncompany Pertamina or payment of interest on the recapitalization
\nbonds to the banks.<\/p>\n
She said the government must work together with BI to help
\nimprove macroeconomic conditions.<\/p>\n
"This will help a lot to bolster the state budget," she said.<\/p>\n
She added it was imperative for the government to push through
\nwith its privatization program and the sale of assets under the
\nIndonesian Bank Restructuring Agency (IBRA).<\/p>\n
"This will provide the government with revenue and at the same
\ntime help restore investor confidence," Sri added.<\/p>\n
The government has planned to privatize several state
\nenterprises this year in order to raise around Rp 6.5 trillion in
\nproceeds to help finance the budget deficit.<\/p>\n
The government started the initial public offering of
\npharmaceutical firm PT Indofarma on Wednesday as the first
\ncompany to be privatized this year.<\/p>\n
However, some analysts said that there were signs that the
\nprivatization program might not run smoothly in view of weak
\nmarket sentiment and possible opposition from the House.<\/p>\n
IBRA is targeted to raise around Rp 27 trillion in cash this
\nyear from asset sales.<\/p>\n
But the agency was hit by rumors earlier this week that its
\ntop officials were planning to resign, amid strong intervention
\nfrom politicians that hampered the agency's work. (rei)<\/p>",
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