Budget deficit woes may halt projects<\/p>\n
Dadan Wijaksana, The Jakarta Post<\/p>\n
Indonesia risks delaying some of its planned development projects
\nthis year so as to help contain the impact of the higher than
\nplanned state budget deficit resulting from soaring oil prices
\nand a weaker rupiah, Standard Chartered Bank has warned.<\/p>\n
The rise in oil prices, currently at record highs, and the
\nrupiah fall could jack up the budget deficit by Rp 3.9 trillion
\n(about US$428 million), according to StanChart economist Fauzi
\nIchsan in the bank's latest economic assessment.<\/p>\n
"Because the government is unlikely to be able to raise its
\ntax revenue to maintain its deficit target, it would have to cut
\nits spending on other items such as the badly needed
\ninfrastructure development and funds allocation to regional
\ngovernments," Fauzi said in the report.<\/p>\n
Under the 2004 state budget, the government sets the deficit
\nat Rp 24.4 trillion, or 1.2 percent of the nation's gross
\ndomestic products (GDP). But Stanchart now projected the deficit
\nto widen to Rp 28.3 trillion, or 1.4 percent of the GDP.<\/p>\n
With the country having become a net oil importer, the rise in
\noil prices -- which have been hovering at $40 per barrel, way
\nabove the government's average price target of $22 -- demanded
\nmore funds to be set aside for the fuel subsidy.<\/p>\n
The oil factor alone has the potential of widening the deficit
\nby around Rp 1.8 trillion, Fauzi added.<\/p>\n
As for the rupiah, its fall boosts the government's spending,
\nnotably on servicing foreign debts.<\/p>\n
"While the government has yet to give an estimate, we believe
\nthat the depreciation could further widen the deficit by around
\nRp 2.1 trillion," the report said, adding that it was based on
\nthe assumption that the average exchange rate of the rupiah in
\nthe year stands at 9,000 per dollar compared to 8,600 set under
\nthe 2004 state budget.<\/p>\n
Under the current state budget (with exchange rate assumption
\nof 8,600 per dollar), the funds allocated to service government
\nforeign debts already reached a staggering amount of Rp 68.8
\ntrillion, both for principal and interest rate payments.<\/p>\n
The rupiah's shaky footing was attributed to various shocks
\nincluding rising political tension in the current general
\nelection year, and the rising interest rate in the U.S.<\/p>\n
It weakened from 8,400 per dollar at the beginning of the year
\nto around 9,150 in July, which has made the local currency Asia's
\nworst performer against the U.S. dollar so far this year.<\/p>\n
However, citing potential extra revenue from further state
\nassets sales, Fauzi was of the opinion that the fiscal impact of
\nglobal market shocks would remain manageable.<\/p>\n
"Unless the rupiah plunges to 10,000 to the dollar and the oil
\nprice continues to climb to more than $50 per barrel," the report
\nsaid market shocks would be manageable, without elaborating on
\nwhat would happen if the above scenario materialized.<\/p>\n
According to the Ministry of Finance, the deficit reached Rp
\n18.6 trillion as of the first semester of the year, which should
\nalready account for some 76 percent of the full-year deficit
\ntarget.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/budget-deficit-woes-may-halt-projects-1447893297",
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"sponsor": "Okusi Associates",
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