IMF asks government to suspend large projects this year<\/p>\n
JAKARTA (JP): The International Monetary Fund (IMF) has asked
\nthe government to shelve several large projects this year in a
\nbid to rescue the troubled state budget, according to a source.<\/p>\n
The source did not say which particular projects were
\nsuggested for cancellation, but he said that the IMF was
\nconcerned about the prospect of a greater-than-estimated deficit
\nin the current state budget.<\/p>\n
\"The IMF wants the government to cancel several large projects
\nfinanced by the state budget,\" the source said on Monday.<\/p>\n
An IMF special mission is currently reviewing the country's
\neconomic condition and the implementation of several key economic
\nreform programs.<\/p>\n
One feature of the talks with the government is a plan to
\nrevise the 2001 state budget due to the unachievable nature of
\nseveral assumptions, particularly amid the economic conditions of
\na weakening rupiah and rising interest rates.<\/p>\n
The government recently admitted that the budget deficit this
\nyear could exceed more than 5 percent of gross domestic product,
\nor equal to more than Rp 72 trillion (US$6.86 billion), compared
\nto the initial projection of 3.7 percent of GDP, or Rp 52
\ntrillion, if no measures were immediately taken.<\/p>\n
The government will have to cut spending, particularly on
\nlarge scale projects, to save the state budget because reducing
\nroutine expenditure such as government employee salaries would be
\npolitically impossible, while boosting domestic revenue from
\ntaxes and excise duties would be difficult amid the current
\neconomic difficulties.<\/p>\n
Initially, the government planned to embark on several
\ninfrastructure projects this year in a bid to stimulate economic
\ngrowth and create employment.<\/p>\n
Some of the projects were canceled in 1997 when the economic
\ncrisis hit Indonesia, and also following recommendations by the
\nIMF, which signed a multi-billion dollar economic bailout package
\nwith the Soeharto administration in power at that time.<\/p>\n
Government spending was expected to be one of the driving
\nforces to generate economic growth this year as investment and
\nexports were unlikely to make a strong contribution amid the
\ncurrent political problems at home and economic slowdowns in the
\nU.S. and Japan, the country's major traditional export markets.<\/p>\n
Bank Indonesia recently predicted that the government's 5
\npercent GDP growth target this year could not be achieved due to
\nthe drop in the exchange rate of the rupiah against the U.S.
\ndollar, domestic political trouble, and slowdowns in the U.S. and
\nJapanese economies.<\/p>\n
The IMF mission arrived last week for a two-week review,
\nexpected to be completed next Monday. The mission will then
\nreport to IMF headquarter in Washington before the fund decides
\non the disbursement of its next $400 million loan tranche to
\nIndonesia, which was canceled late last year due to signs of the
\ngovernment backtracking on the implementation of several key
\neconomic reforms.<\/p>\n
Director General of Financial Institutions Darmin Nasution
\nsaid that a revision of the state budget was inevitable.<\/p>\n
\"It is certain that there will be a revision,\" Darmin said,
\nbut declined to provide more details.<\/p>\n
The current state budget assumes an exchange rate of Rp 7,800
\nper U.S. dollar, and a Bank Indonesia SBI promissory note
\ninterest rate of 11.5 percent.<\/p>\n
However, the rupiah fell to a 30-month low of around Rp 11,500
\nper dollar last month amid domestic political problems and a
\ndelay in the disbursement of the crucial IMF loan tranche. The
\ndrop in the rupiah has forced Bank Indonesia to allow the SBI
\nrate to increase to 15.82 percent.(rei)<\/p>",
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