IMF and govt divided over draft state budget<\/p>\n
The state budget for 1998\/1999 has disappointed the
\nInternational Monetary Fund. Economist Kwik Kian Gie discusses
\nthe budget that may have caused a difference in opinion between
\nthe government and the fund.<\/p>\n
Question: The IMF is disappointed with the 1998\/1999 budget.
\nCan you explain why?<\/p>\n
Kwik: The government reached an agreement with the IMF that
\nits budget for 1998\/1999 and the following years should allocate
\na surplus equivalent to 1 percent of the country's gross domestic
\nproduct (GDP). The budget plans do not explicitly allocate such a
\nsurplus. The IMF considers Indonesia as reneging on the
\nagreement.<\/p>\n
Q: Can you identify the specific differences of opinion between
\nthe government and the fund?<\/p>\n
K: The terminology of their concepts shows the difference. The
\nagreement, announced on Oct. 31, 1997, said: \"In 1998\/1999 and
\nthe following fiscal years, the government will target a
\n'surplus' equivalent to 1 percent of GDP.\" President Soeharto in
\nhis budgetary speech on Jan. 6, said: \"The draft budget for
\n1998\/1999 is designed to 'balance' at Rp 133.5 trillion.<\/p>\n
It should allocate a surplus of Rp 4.14 trillion because GDP
\nis projected at Rp 414.4 trillion. The budget, therefore, should
\nset total domestic revenues at Rp 107.68 trillion, while spending
\nshould total Rp 103.54 trillion, comprising routine spending of
\nRp 92.38 trillion and development spending of Rp 11.16 trillion.
\nThus, its surplus would reach Rp 4.14 trillion. The government's
\ndraft budget allocates development spending of Rp 41.1 trillion,
\n3.68 times larger than that agreed on with the IMF.<\/p>\n
Because development spending is set at Rp 41.1 trillion, the
\nbudget will have a deficit of Rp 25.8 trillion, which will be
\ncovered by foreign aid.<\/p>\n
In its balance of payments projections, the government expects
\n\"official capital inflow\" of $9.05 billion. This is confusing
\nbecause if it is equivalent to (the deficit of) Rp 25.8 trillion,
\nthe government is using a conversion rate of Rp 2,851 against the
\ndollar (the budget's official conversion rate is Rp 4,000).<\/p>\n
Q: Why has the government labeled the deficit budget as a
\nbalanced one?<\/p>\n
K: The government has done this for about three decades. It is
\nnot surprising if the government uses a term which means
\ndifferent things to other parties. I have long tried to
\nunderstand it and failed. Some say that the terms \"surplus\" and
\n\"deficit\" should be interpreted as \"contractive\" and \"expansive\".
\nIf we agree to use such terms, we will have to label the budget
\nas expansive or deficit, with a mathematical description
\nfollowing it.<\/p>\n
The purchasing power to be absorbed from the people will be
\nequivalent to the expected domestic non-oil revenue of Rp 80.4
\ntrillion, while the purchasing power to be pumped into the market
\nwill total Rp 82.8 trillion, consisting of Rp 21.12 trillion for
\nsalaries and wages, Rp 10.05 trillion for material expenditures,
\nRp 12.28 trillion for subsidies to autonomous regions, Rp 1.84
\ntrillion for domestic debt servicing, Rp 15.38 trillion for other
\nroutine expenses and Rp 22.1 trillion for rupiah-financed
\ndevelopment spending. Thus, the net (expansive) injection of
\nfunds into the domestic market will reach Rp 2.4 trillion.<\/p>\n
Q: Are there any other projections which may confuse the IMF?<\/p>\n
K: I don't know whether the following examples have confused the
\nIMF. I myself am confused with projections that the revenue from
\nvalue-added tax is expected to increase by 13.1 percent but the
\nrevenue from income tax is expected to decline by 9.5 percent. We
\nknow that company taxable incomes have a close relationship to
\nthe volume of their sales.<\/p>\n
Another strange thing is the high rate (74.4 percent) of the
\nincrease in domestic non-tax non-oil revenue, which is mostly
\nexpected from state-owned companies, including state-owned banks.
\nHow can we expect a drastic increase in their profits in a year
\naffected by a serious economic recession?<\/p>\n
Q: Some suggested that Indonesia should boost exports while
\nslashing imports instead of reducing expenditures. What do you
\nthink about this?<\/p>\n
K: It is not realistic in the short term. For 30 years, exports
\n(of goods and services) have never exceeded imports and Indonesia
\nhas always suffered current account deficits, except in 1973,
\n1979 and 1980, when oil prices were booming.<\/p>\n
It will be more realistic if we reduce investment and
\ngovernment spending. This will worsen the recession but it will
\nact like a \"bitter pill\" for our economy.<\/p>\n
Because one of the causes of the current economic crisis is
\nover-investment, not under-consumption, we must treat the over-
\ninvestment if we want to cure the economy. Expanding government's
\nspending will worsen the current account deficit because we will
\nhave to increase foreign debt and the savings-investment gap will
\nexpand. (riz)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/imf-and-govt-divided-over-draft-state-budget-1447893297",
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