Lower interest rates key for deficit control<\/p>\n
Fitri Wulandari
\nThe Jakarta Post
\nJakarta<\/p>\n
Although the state budget deficit in the first semester of this
\nyear turned out to be much lower than predicted, economists said
\nthe government still had to work extra hard to maintain a
\n\"favorable domestic environment\" to help ensure that the full-
\nyear deficit would not inflate beyond the safe limit.<\/p>\n
Raden Pardede said that the favorable environment would give
\nroom for Bank Indonesia to continue to guide interest rates
\nlower, which in turn would ease the burden of the state budget in
\ncovering the interest cost of government bonds.<\/p>\n
\"A one percent increase in interest rates means the government
\nmust pay an additional Rp 2.3 trillion (US$258 million) in
\ndomestic debt. Lowering interest would certainly ease the
\ngovernment's burden,\" Raden told The Jakarta Post over the
\nweekend.<\/p>\n
The government issued over Rp 430 trillion worth of bonds to
\nrecapitalize ailing banks in the late 1990s. The bond interest
\nrates is attached to the interest rate of Bank Indonesia SBI
\npromissory notes.<\/p>\n
For this year alone, the state budget must allocate some Rp 60
\ntrillion for interest payments -- the largest expenditure item.<\/p>\n
If the government manages to control this expenditure, the
\n2002 state budget deficit would not explode beyond the Rp 42
\ntrillion or 2.5 percent of gross domestic product limit.<\/p>\n
The Ministry of Finance recently reported that for the first
\nsemester of 2002, the budget deficit was Rp 7.1 trillion or 16.8
\npercent of this year's limit of Rp 42 trillion.<\/p>\n
The number was much lower than earlier predicted by the
\ngovernment and the International Monetary Fund at Rp 14 trillion.<\/p>\n
Analysts, however, explained that with a fraction of the recap
\nbonds to mature in the second half, combined with signs of the
\nrupiah weakening once again, Bank Indonesia could be prompted to
\nraise interest rates for the second semester which would endanger
\nthe deficit target.<\/p>\n
Umar Juoro said the government must somehow lower domestic
\ndebt burdens because that was the only way to compensate for the
\nslumping exports and foreign direct investment.<\/p>\n
\"There is no significant chance to increase revenue from other
\nsectors. This (lowering domestic debt) is the only way,\" he told
\nThe Post.<\/p>\n
The interest rate for one-month SBI notes have been on a
\ndeclining trend since the beginning of the year amid a stronger
\nrupiah and slowing inflation. The rate is currently less than 15
\npercent compared to more than 18 percent late last year.<\/p>\n
But the rupiah has been under heavy pressure lately, breaking
\nthe Rp 9,000 level for the first time in two months last week.
\nAnalysts said that in addition to global uncertainty, and the
\nupcoming August Annual Session of the People's Consultative
\nAssembly (MPR) investors were getting increasingly jittery. A
\nweak rupiah could reignite inflation.<\/p>\n
In terms of first half revenue, the government managed to get
\nRp 130.5 trillion, compared to the full-year target of Rp 301
\ntrillion.<\/p>\n
Expenditure in the first semester reached Rp 137.6 trillion,
\ncompared to the 2002 target of Rp 344 trillion.<\/p>\n
For revenue, however, the two economists have different
\nopinions on whether the government should continue to rely on
\ntaxes as the main source of income.<\/p>\n
Raden agreed that the government must focus on tax to increase
\nrevenue.<\/p>\n
Tax still makes up 70 percent of the budget revenue with this
\nyear's target of Rp 219.6 trillion. According to the Ministry of
\nFinance, as of June, the government managed to raise Rp 130
\ntrillion in taxes.<\/p>\n
Meanwhile, Umar voiced a different opinion saying that relying
\non taxes would only burden the economy which at present was
\ndriven mainly by domestic consumption.<\/p>\n
\"Pushing taxes as the main source of revenue would only put
\npressure on economic activities and domestic consumption,\" Umar
\nsaid.<\/p>\n
Umar said what the government should do was to improve the
\ndomestic climate to lure more investors back in.
\n
\nFor eyebox<\/p>\n
The State Budget performance in the first semester 2002<\/p>\n
Full-year target 1st Semester<\/p>\n
-------------------------------------------
\nDeficit Rp 42 trillion Rp 7.1 trillion<\/p>\n
Revenue Rp 301 trillion Rp 130.5 trillion<\/p>\n
Expenditure Rp 344 trillion Rp 137.6 trillion<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/lower-interest-rates-key-for-deficit-control-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }