Get real with the budget<\/p>\n
The revised government budget for the 1998\/1999 fiscal year,
\nas presented by Minister of Finance Mar'ie Muhammad to the House
\nof Representatives yesterday, was much more realistic than the
\noriginal draft presented by President Soeharto on Jan. 6.<\/p>\n
Whether it is realistic enough, however, depends on follow-up
\ngovernment actions in dealing with the economic crisis. But here
\nis a hint: Soon after the announcement, the rupiah's exchange
\nrate plunged to Rp 15,000 to the dollar and only recovered after
\nBank Indonesia intervened. The market was not impressed, and is
\nnot even willing to give the government the benefit of the doubt.
\nThe chief message from the market was not so much that the budget
\nwas unrealistic, but that it had no relevance to the problem at
\nhand.<\/p>\n
To be fair, we have to credit the government for moving
\nswiftly after President Soeharto signed the letter of intent with
\nthe International Monetary Fund on Jan. 15 to carry out sweeping
\neconomic reforms. On Wednesday, the head of state issued seven
\nexecutive orders and directives to start implementing the
\nreforms, including the dismantling of various business monopolies
\nand privileges. Yesterday, Mar'ie unveiled the revised budget.<\/p>\n
The budget, setting total spending at Rp 147.2 trillion, is
\ncalculated using an exchange rate of Rp 5,000 to the dollar, with
\nassumptions of zero economic growth and 20 percent inflation. All
\nspending items have been adjusted upwards according to the new
\nexchange rate. The lone exception is for the fuel subsidy, which
\nwas cut in line with the government's pledge to phase it out.<\/p>\n
The original budget set spending at Rp 133.5 trillion, using
\nan exchange rate of Rp 4,000 to the dollar, while projecting a 4
\npercent economic growth rate and 9 percent inflation. It was way
\nout of touch with reality. But, looking at the market sentiments,
\nthe revised budget could easily end up looking just as ambitious.
\nThe rupiah's exchange rate has remained above the Rp 10,000
\nlevel, shooting up to Rp 17,000 Thursday, while recovering only
\nafter government intervention.<\/p>\n
The fact of the matter is the IMF reform package is only half
\nof the solution to the crisis. The other half -- the question of
\nthe massive corporate debt -- has not been addressed, either in
\nthe reform package, or in the budget speech yesterday.<\/p>\n
The corporate debt -- put at US$66 billion of which $20
\nbillion is due soon -- was what set off the chain reaction which
\nled to the massive dollar buying, which in turn depressed the
\nrupiah.<\/p>\n
The government has stubbornly resisted calls to bail out these
\ndebtors, which include some of the country's largest business
\ngroups. It is a catch-22 situation. Bailing them out is
\npolitically unacceptable, but is economically desirable -- if not
\nto save the companies, at least to save hundreds of thousands,
\nand probably millions of jobs. The government has only been
\nwilling to assist in renegotiating the debts, but not beyond
\nthat.<\/p>\n
Now with its budget revised, perhaps there is another
\ncompelling reason for the government to address the corporate
\ndebt one way or another, and to bring the exchange rate down to
\nthe targeted level. It is not only in the interest of the
\ngovernment to have a stable currency. The volatile rupiah makes
\nit difficult for any company to do business, let alone to plan
\nahead.<\/p>\n
The government is already going half way with economic reforms
\nand the budget revision. All these endeavors would come to nought
\nif it fails to address the other half of the problem.<\/p>",
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"sponsor": "Okusi Associates",
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