Domestic debt 'constraint to economic growth'<\/p>\n
JAKARTA (JP): The government's mounting domestic debt will
\nconstrain its ability in 2000 and the years to come to stimulate
\neconomic growth, according to the University of Indonesia's noted
\neconomist Sri Mulyani Indrawati.<\/p>\n
Speaking at a business luncheon hosted by the Indonesia-
\nAustralia Business Council, Sri said the huge domestic debt would
\nalso complicate macroeconomic management.<\/p>\n
Because of such complications, Sri called on the government,
\nin this case the Ministry of Finance, and Bank Indonesia to work
\ntogether very closely to manage the macroeconomy and, especially,
\nto contain inflation rates.<\/p>\n
\"Unfortunately, I see no mutual trust between these two
\nimportant institutions,\" Sri said. \"I don't see any efforts from
\nBank Indonesia or the government to reduce inflation to below 5
\npercent.\"<\/p>\n
Because of the huge debt, she said, the 2000 budget would be
\nsusceptible to inflation. Any increase in inflation would inflate
\nthe government's spending for interest payments on its
\nmultibillion dollar bonds.<\/p>\n
If inflation exceeded the government's target of 4.8 percent
\nthis year, interest rates would also increase and, therefore, the
\ngovernment would have to pay extra for the interest payments on
\nits floating rate bonds.<\/p>\n
Based on calculations made together with her colleagues at the
\nUniversity of Indonesia, Sri said her optimistic inflation
\nprediction this year would be slightly over 5 percent and below 7
\npercent. But her pessimistic prediction would be around 9
\npercent.<\/p>\n
The government has been compelled to accrue a huge domestic
\ndebt of around Rp 500 trillion (US$70 billion) to finance the
\nrecapitalization of the country's shattered commercial banks.<\/p>\n
The interest payments on the debt are financed by the state
\nbudget.<\/p>\n
Sri, who is also secretary general of the National Economic
\nCouncil, said the government's decision to inject such a huge sum
\nto mend the destroyed banking industry was questionable because
\nof the \"fairness issue\". In addition, the restructuring itself
\nhad been moving at a snails pace.<\/p>\n
\"This is very disappointing,\" she said. \"People are very
\nskeptical on the progress of bank restructuring.\"<\/p>\n
Sadder still, Sri said, the government's huge domestic debt
\nwould continue to burden the state budget in the years to come.
\nShe predicted the domestic debt burden on the budget would reach
\nits peak in year 2003, when some of the bonds mature.<\/p>\n
The government expects to finance the interest payments on its
\ndebt partly from the sales of assets under the management of the
\nIndonesian Bank Restructuring Agency and the privatization of
\nstate firms.<\/p>\n
According to the government's nine-month 2000 draft budget,
\nIBRA is expected to contribute Rp 16.25 trillion from asset sales
\nto the government's coffers.<\/p>\n
But Sri questioned IBRA's ability to sell assets under its
\nsupervision, arguing the agency had not yet proved capable of
\nselling big assets to foreign investors. Sri even questioned the
\nagency's target of raising Rp 17 trillion for this fiscal year,
\nending March 31.<\/p>\n
Nevertheless, Sri saluted the government's decision to set a
\ncrude oil price of US$18 a barrel, far below the current market
\nprice of around $24.<\/p>\n
The International Monetary Fund and the World Bank, she said,
\nhad demanded the government's assumptive oil price in the 2000
\nbudget be set at $20 a barrel, but the government insisted on
\nusing $18.<\/p>\n
That conservative assumption, she said, would result in a huge
\n\"unexpected\" income for the government, which could be used to
\ncover inflated spending.<\/p>\n
Sri was also confident that the government would be able to
\nreach its tax revenue target of Rp 97.78 trillion. She noted that
\nincome tax from the interest payments on the government's bonds
\nalone would contribute Rp 7 trillion to the 2000 budget.<\/p>\n
She even called on the government to increase its tax revenue
\ntargets. The government, she said, could actually raise more
\nmoney from taxes if it broadened the tax base and intensified tax
\ncollections. (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/domestic-debt-constraint-to-economic-growth-1447893297",
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