Financing the budget<\/p>\n
Sven Sandstrom, vice president of the World Bank, which chairs
\nthe country's creditor consortium -- the Consultative Group on
\nIndonesia (CGI) -- outlined early this week major challenges the
\nnew government will encounter in drafting its 2000\/2001 budget
\nbeginning in April. He suggested that prospects of obtaining new
\nlarge foreign loan commitments could be minimal, given the
\nalready heavy exposure of most major creditors to Indonesia, and
\nthe government's monstrous debt service burden, which has
\nexceeded 50 percent of the country's total export earnings.
\nSandstrom instead offered assistance to the government in
\noptimizing revenues from domestic sources.<\/p>\n
Although Sandstrom did not state the issue explicitly, his
\nmessage was loud and clear: the government can no longer expect
\nthe almost US$8 billion in new pledges received from the CGI last
\nyear. The pledges plugged the government's budget hole for the
\n1999\/2000 fiscal year ending in March. Of even more concern is
\nthat another $2 billion in additional aid is yet to be sought
\nfrom CGI, which will hold its annual meeting in Paris later this
\nmonth. The additional funds are necessary, because the budget
\ndeficit for the current fiscal year was estimated at around $10.3
\nbillion, or 35.4 percent of the total budget.<\/p>\n
The budget deficit for the next fiscal year will most likely
\nremain considerable, despite a significant improvement in the
\ncountry's macroeconomic condition. Positive indicators are
\nreflected by the slight economic recovery in the first half, a
\nstrengthening rupiah, declining interest rates and falling
\ninflation. However, the economic gains remain highly vulnerable.
\nTheir sustainability depends on an accelerated pace of reform
\nmeasures, especially banking and corporate restructuring, and
\nresolution of more than $63 billion in corporate (private)
\nforeign debts. Other key stabilizers will be the smooth election
\nof a new president and the establishment of a new, credible
\ngovernment in November.<\/p>\n
The greatest demands on the upcoming state budget will stem
\nfrom servicing about $70 billion in government foreign debts and
\nRp 351 trillion in domestic debts, incurred by the issuance of
\ntreasury bonds to recapitalize distressed banks, and from fuel,
\npower and food subsidies.<\/p>\n
Sandstrom said the government was approaching the World Bank's
\nloan concentration limit for a single large borrower, thereby
\nlimiting the scope for additional large borrowing in future
\nyears. Further debt rescheduling under the Paris Club is less
\nlikely, following last year's agreement by major sovereign
\ncreditors to reschedule $4.2 billion in principal payments for a
\nperiod of between 11 and 20 years.<\/p>\n
Given these restrictions, the government will have to turn to
\ndomestic alternative sources, viz. the reduction of subsidy
\nspending, accelerated sales of state companies and the recovery
\nof bad loans and sales of fixed assets, which were taken over
\nfrom closed-down and nationalized banks and are now under the
\nmanagement of the Indonesian Bank Restructuring Agency (IBRA).<\/p>\n
However, at a time when most people are already suffering the
\nbrunt of the economic crisis, reducing subsidy spending would be
\npolitical suicide for the new government. Hence, the most
\nplausible, and the most challenging, alternative sources of
\nrevenues are the sales of state companies and the recovery of bad
\ndebts and assets.<\/p>\n
Fortunately, the privatization program, which performed
\npoorly and achieved less than a third of its $1.5 billion target
\nlast year, has picked up steam this year. Buoyed by a regionwide
\nstock market rebound and improving economic indicators in the
\ncountry, the policy has thus far generated more than $880 million
\nfor the state's coffers, or almost 60 percent of the $1.5 billion
\ntarget set for the current fiscal year ending next March. The
\nbullish outlook of the Jakarta Stock Exchange will hopefully
\nfurther accelerate the sales of the 10 state companies set for
\nthe year.<\/p>\n
The most difficult task -- and one that is a political
\nminefield -- is the recovery of over Rp 351 trillion in bad debts
\nand assets currently managed by IBRA. The complicity of many
\nwell-connected businesspeople with a sizable portion of the
\ndebts, the difficulty of assessing asset quality, and depressed
\nmarket conditions makes for a delicate and complex collection
\nprocess. IBRA has thus far recovered less than Rp 1.4 trillion of
\nthe Rp 17 trillion it was assigned to contribute to the current
\nstate budget. The agency's asset and debt recovery performance is
\nso crucial for meeting the budget needs that it should be the
\nfocus of any World Bank assistance to maximize domestic revenues.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/financing-the-budget-1447893297",
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"sponsor": "Okusi Associates",
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