Megawati submits contractionary but workable budget<\/p>\n
On Friday President Megawati Soekarnoputri unveiled the 2002
\ndraft state budget at a House of Representatives' plenary session
\nin Jakarta. The text and tables can also be accessed on
\nwww.thejakartapost.com.<\/p>\n
It indeed required extra effort to finish the Draft of the
\n2002 State Budget (APBN) in the midst of this seemingly uncertain
\nsituation. There are a number of issues that need to be
\nconsidered in finding the solutions, which is also difficult.<\/p>\n
I am of the opinion that we all know and understand the
\nsituation. To date we do not have many first-class options at our
\ndisposal. More than often, we have to select the most appropriate
\noption from a wide range of less favorable choices. This is also
\nthe case in selecting the ways and means to materialize them. The
\nresources at our disposal are indeed limited. Not only does it
\nrequire restructuring, at the same time we need to optimize them,
\ntaking into account all their attending limitations.<\/p>\n
It was under such circumstances that the preparation and
\ndrafting of the 2002 State Budget had to be carried out. In
\naccordance with the parameters set by the 1999-2004 State Policy
\nGuidelines (GBHN), this Draft was prepared based on the 2002
\nAnnual Development Plan (REPETA) that is part of the 2000-2004
\nNational Development Program (Propenas). There are five national
\npriorities, which are: to develop people's welfare; to develop a
\npolitical system that is democratic and able to maintain the
\nnation's unity and cohesion; to speed up economic recovery; to
\nimprove regional development; and to uphold the law. All of these
\nhave been used as parameters to prepare and draft the 2002 State
\nBudget.<\/p>\n
These national priorities are principally in line with the
\nprogram of the Gotong Royong Cabinet. Apart from preparing all
\nnecessary measures to facilitate the next general election, these
\nefforts are done in view of our determination to continuously
\ncarry out reform and democratization in all aspects of the life
\nof the nation through a clearer framework, path and agenda while
\ncontinuously improving respect for human rights.<\/p>\n
Evaluation of the overall situation has led to the
\nconsideration to translate all-important aspects in the above
\npriorities into Cabinet programs. Dynamic developments in society
\nand the demand to manage the changes in a much faster way have
\ninfluenced the drafting of the programs. If carefully observed,
\nit will be seen that these programs are still within the
\nframework of those priorities as mandated by the State Policy
\nGuidelines and the Propenas.<\/p>\n
Allow me to start by fielding the main rationales that
\nunderlined the drafting of various plans and activities as well
\nas its quantitative translation into this Draft State Budget. The
\ndetailed version can be verified in the attached Financial Note.<\/p>\n
The first point concerns welfare. This issue has overwhelmed
\nus, which in the end points at the basic problem of welfare. All
\nthe Cabinet programs I disclosed as an extract of the important
\naspect of our five national priorities indeed contain people's
\nwelfare.<\/p>\n
In the field of people's welfare, development is directed
\ntoward the delivery of basic social services such as education,
\nhealth and social welfare, in particular for the poor as well as
\nfor the handling of refugee-related issues.<\/p>\n
Social welfare is also affected by the unresolved problem of
\nunemployment due to the lingering economic crisis, which has yet
\nto be fully worked out.<\/p>\n
Much more attention is therefore due to the education sector.
\nI believe that we all agree on the importance of this issue for
\nthe sake of national sustainability. Results of education
\ndevelopment that we have so far achieved must be hastened further
\nthrough the nine-year compulsory primary education program. Added
\nand improved access to educational services both within and
\noutside schools -- expected to continue along with improved
\neducation -- need to be further improved given the increasingly
\nemerging roles and initiatives of the people.<\/p>\n
Equally serious attention should also be paid to the
\ndevelopment of a political system that is more democratic and
\nable to maintain the integrity of the Unitary State of the
\nRepublic of Indonesia, and to nurture the nation's unity and
\ncohesion. There is surely much homework to be done in this area.
\nThere are many steps to be taken to deal with the various
\npolitical uprisings and, at the same time, to strengthen
\npolitical stability. There are various regulations that need to
\nbe reviewed to meet public aspirations, including the way general
\nelections are conducted.<\/p>\n
Also crucial is the threat to national integration and the
\ndisruption to people's sense of security, as well as efforts to
\nmeet the minimum required weaponry system and steps to improve
\nthe professionalism of the Indonesian Military and the National
\nPolice. These measures are part of the Cabinet programs to
\nprepare for the 2004 general election which must be safe,
\norderly, discreet and direct, to preserve the unity and cohesion
\nof the Unitary State of the Republic.<\/p>\n
In line with this direction of thought, there are efforts to
\nrestore the image as well the dignity and trust of the
\ninternational community in our nation-state. It is against this
\nbackdrop and also in a bid to maintain the nation's unity and
\ncohesion that I prioritized visits to countries of the
\nAssociation of Southeast Asian Nations; and this month I plan to
\nvisit the United States of America to speak before the United
\nNations General Assembly, and Japan.<\/p>\n
We are also trying to further nurture economic cooperation,
\nincluding within the framework of the Asia Pacific Economic
\nCooperation forum and to strengthen Indonesia's preparedness in
\nview of the upcoming ASEAN Free Trade Area. All these are part of
\nthe Cabinet programs in an attempt to pursue a free and active
\nforeign policy, to restore the image of the state and nation, and
\nto regain international confidence -- including that of donor
\ninstitutions and investors -- in the Indonesian government.<\/p>\n
Given the burden of unemployment and the increasingly urgent
\nneed to create new job opportunities, the steps to invite
\ninvestments have become even more pressing. For this purpose, the
\ngovernment is trying to lay down new policies in the investment
\nsector. All these are indeed needed to resume the running of the
\nnational economy, which has almost collapsed.<\/p>\n
I am convinced that we can all see that the recovery of our
\nnational economy will become an initial step to create jobs and
\nalleviate poverty. Our ability to decrease the level of poverty
\nand the number of the needy depend upon the success of our
\neconomic recovery program. It must be admitted that the
\nrealization of these objectives will be mainly determined by the
\nrole of the private sector, for the state indeed lacks funds.
\nTherefore, to speed up economic recovery, there is also a need to
\naccelerate the sales of assets derived from banking restructuring
\nand the privatization of state-owned enterprises, and to speed up
\nthe restructuring of the private sector's debts as well as to
\nrestore banking functions.<\/p>\n
To provide a legal foundation for this assets-selling program
\nor the privatization of state-owned firms, I have recently
\nsubmitted a bill aimed at regulating the sale of these assets.<\/p>\n
Apart from investments, one source expected to grow is non-oil
\nand gas exports. Steps to improve these exports are to be
\ncontinued by eradicating distribution barriers, overcoming
\nworkers' problems, reducing trade impediments with industrialized
\ncountries and widening export markets.<\/p>\n
To deal with decreasing infrastructural support caused by the
\nongoing economic crisis, the government plans to revive public
\nparticipation. For this purpose, various policies and regulations
\nwill be perfected to encourage this participation, such as by
\nrestructuring tariff policies and deregulating licensing in the
\nenergy sector, including electricity, transportation, post,
\ntelecommunications and informatics.<\/p>\n
The main concept on regional development relates to the funds
\ntransferred (to the regions). In this area there are, however,
\nstill some problems that require our serious attention.<\/p>\n
First, there is a need to wisely and carefully observe the
\ndivision of the balanced funds and the possible regional
\nfinancial loans. This sober attitude is needed, for the negative
\nimpact of a local government's financial instability will
\ndefinitely have a national bearing.<\/p>\n
Second, the utilization of the balanced funds to meet the
\nlocal government's duties and responsibilities to society in
\ntheir respective regions can be carried out in an orderly and
\ndisciplinary fashion in line with existing regulations.<\/p>\n
Third, there is a need to have an iron will to eradicate
\nbarriers to trade and investment that may decrease the income of
\nthe regions concerned.<\/p>\n
Fourth, there is a need to reinforce the principles of
\nadministering natural resources, and existing and future
\ninfrastructure, to achieve maximum benefit for all, instead of
\ninstigating the break away of our nation and state.<\/p>\n
Apart from the above problems, another equally important issue
\nis to uphold the law. Through the Cabinet programs, the
\ngovernment is determined to execute legal supremacy and to
\nconsistently instill a sense of security in society, and to
\neradicate corruption, collusion and nepotism (KKN). The handling
\nof KKN and human rights cases are still priorities. As such,
\nimproved effectiveness of the judiciary institutions and of other
\nlaw enforcement agencies, including their professionalism, will
\nalso be given more attention.<\/p>\n
These are the main rationales underpinning the formulation of
\nthe Draft of the 2002 State Budget.<\/p>\n
The fiscal policy for 2002 is designed in two frameworks.
\nFirst, to create a continuous balance between the need for state
\nspending with sources of revenue and financing of development.<\/p>\n
Second, to enhance regional autonomy by relinquishing tasks
\nand responsibilities to the regions, along with the provision of
\nsufficient funds. The government is aware that determining the
\namount of these funds is not easy. By taking into account the
\nallocation of the 2001 balanced funds and various difficulties
\nfaced by the regions, measures have been taken to rectify
\nestimations for 2002. These are all aimed at balancing the funds
\nwith the responsibilities entrusted to the regions, which should
\nreflect the principles of a just and fair distribution, and
\nminimize interregion gaps. The objective is to have all regions
\nprogress together within the Unitary State of the Republic. The
\nwillingness to share the burden and work together to overcome
\nproblems will strengthen us as a nation.<\/p>\n
Apart from those two frameworks, the drafting of the 2002
\nState Budget certainly took into consideration the estimated
\ngrowth of the national economy. For 2001, economic growth is
\nexpected to be lower than that of 2000, which was recorded at 4.8
\npercent. This estimation is based on the weakening of non-oil and
\ngas exports during the first semester of 2001 that decreased by
\n2.2 percent compared to the same period in the previous year.<\/p>\n
This situation cannot be separated from the weakening of the
\nrupiah. Up to the end of July, the rupiah's value still indicated
\na worsening trend, with its average value at around Rp 10,900 to
\nthe U.S. dollar. The weakening of the rupiah contributed to
\nhigher inflation, apart from other factors such as the increase
\nin fuel prices. From January to July 2001, inflation reached 7.7
\npercent. An annual calculation reveals an inflation growth of 13
\npercent, followed by higher interest rates, similar to previous
\nperiods. The three-month interest rate of Bank Indonesia
\npromissory notes (SBIs) rose from 14.8 percent in early January
\n2001 to around 17.6 percent in the third week of August 2001.<\/p>\n
We are thankful that one main factor which significantly
\ninfluenced the economy -- political instability -- has been
\nsettled wisely and peacefully. We are also thankful that the
\nmarket has placed sufficient confidence in the Cabinet. In recent
\nweeks, we have witnessed the tendency of the rupiah to gain
\nground compared to the previous period. This is still temporary,
\nand it is therefore increasingly important for us to use the best
\nof the momentum to ensure that this improvement is sustained.<\/p>\n
In general, economic growth in 2001 is estimated to merely top
\n3.5 percent. Against this background the need to remain vigilant
\nis crystal clear, for the numbers of the needy and the unemployed
\nare still high. This sluggish growth will impede the creation of
\njob opportunities, while skyrocketing inflation will definitely
\ndecrease people's real incomes. It is this that has led to
\ndemands of higher workers' wages, which has in turn ended in
\nsocial tension.<\/p>\n
It is therefore urgent to settle the root of the problem,
\nthrough sufficient economic growth while maintaining price
\nstability.<\/p>\n
In relation to economic growth, I would like to reiterate the
\nimportance of the role of investment. To this end the government
\nhas prepared several measures to encourage investment.<\/p>\n
Through the adoption of these measures it is expected that the
\neconomy in 2002 may grow better and that the rate of unemployment
\nand the poor can be reduced. Also, the rupiah is expected to
\nremain stable at an average of Rp 8,500 to the dollar. If all
\nthis can be achieved, inflation should be curbed and the three-
\nmonth interest rates of Bank Indonesia promissory notes can
\ndecrease.<\/p>\n
The budget calculation is also based on estimated oil
\nproduction and prices on the international market. Oil production
\nin 2002 is set at 1.23 million barrels per day; and to reduce
\nuncertainty in the implementation of the budget in 2002, given
\nits sensitive nature vis-a-vis the value of the rupiah and the
\nSBI interest rate. The international price of oil is set at a
\nconservative level of US$22 per barrel.<\/p>\n
State revenue in the 2002 budget is set at Rp 291.4 trillion,
\nwhich is 17.3 percent of gross domestic product. This is not an
\neasy task. For the sake of efficiency and fairness, various tax
\ndeferments will be further reduced. The policy in this area will
\nbe based on intensification and extension of the tax base.<\/p>\n
In addition, state revenue earned from nontax state income
\n(PNBP) is estimated at Rp 72.6 trillion. This amount is projected
\nto be collected from the improved health and performance of
\nstate-owned firms and from a review of government earnings from
\nprofits of the state-owned companies. Another measure is to
\nintensify the collection of due debts owed to regional
\ngovernments and region-owned enterprises.<\/p>\n
Some of the revenue will be disbursed for routine expenditures
\nestimated at Rp 196 trillion. The other two main spending areas
\nare for bond interest rates for banks estimated at Rp 61.1
\ntrillion, and the fuel subsidy. For this purpose an all-out
\neffort will be made to immediately enable the Indonesian Bank
\nRestructuring Agency to restructure assets under its care,
\nthe results of which will partly be used to retire government
\nbonds.<\/p>\n
A similar heavy burden is the fuel subsidy in 2001. Despite
\nthe increase of domestic prices, the subsidy remains high at Rp
\n53.8 trillion. This amount is higher than that set aside for the
\ndevelopment budget of Rp 45.5 trillion. Fuel consumption
\ncontinues to increase, generating a heavier burden of subsidy. A
\nsubsidy reduction, therefore, becomes more compelling, for
\notherwise we will not have sufficient funds to finance
\ndevelopment activities. Not only is the fuel subsidy incorrectly
\ntargeted, it has encouraged overseas smuggling, thereby reducing
\ndomestic supply.<\/p>\n
Considering the aforementioned, the choice only highlights the
\nneed to raise domestic prices. Obviously, it is a heavy, yet
\nunavoidable decision to maintain the sustainability of the state
\nbudget as a prerequisite for economic recovery. The balance
\nobtained from a subsidy reduction would increase development
\nfunds available to fulfill the basic needs of people.<\/p>\n
In a bid to lessen the burden of the low-income people as a
\nresult of the price hikes, compensatory programs will be carried
\nout. In order not to repeat past experiences, such programs would
\nbe carefully prepared from the very beginning, as part of the
\nprocess of formulating and deliberating the Draft State Budget
\nfor 2002, to ensure smooth running of the programs when the price
\nincreases are effected. Besides this, the government continues to
\nmake appropriation for supporting special rice market operations
\naimed at ensuring the availability of rice at a price affordable
\nto the poor people.<\/p>\n
Allow me now to submit the main development budget for 2002.
\nAs a result of the strong commitment to fiscal sustainability by
\nreducing the amount of debts, funds for development become more
\nlimited. Although the nominal amount of the budget is increasing,
\nits ratio against the GDP will decrease from 3.1 percent in 2001
\nto 2.8 percent in 2002. This limited budget urges the regions to
\ntake up bigger responsibilities in accordance with the larger
\namounts of funds that will be transferred to them. Nominally, the
\nbudget for development for 2002 is Rp 47.1 trillion, of which Rp
\n22.7 trillion will be locally financed and Rp 24.4 trillion will
\nbe funded by foreign loans.<\/p>\n
The development budget fully managed by the central government
\nwill be directed more for improving the people's welfare,
\nespecially through the provision of basic needs in a more just
\nand evenly distributed manner, the improvement of income, and the
\ncreation of jobs and the maintenance of the physical
\ninfrastructure. Some of the budget will also be spent for
\nsupporting the endeavors to create good governance and to restore
\norder and security.<\/p>\n
On this occasion I am not going to dwell upon the allocation
\nof the budget in every single sector. The more detailed
\nallocation has been distributed to the distinguished members of
\nthe House. As a general picture, however, I would touch on some
\nof the proposed budget allocation for some sectors.<\/p>\n
In an attempt to fulfill the basic needs of the people, the
\ngovernment has earmarked for the education, and health and social
\nwelfare sectors a budget of Rp 11.6 trillion and Rp 4.3 trillion,
\nrespectively. The budget allotted for the latter two uses up one
\nthird of the total development budget, while the education sector
\ntakes 24.7 percent.<\/p>\n
The educational budget will be used for improving enrollment
\nat elementary schools, especially the intensification of the
\nnine-year compulsory education program, improving the quality of
\neducation, providing scholarships for children of poor families,
\nprocuring textbooks and improving the quality of teachers and
\nother educational officials through a series of trainings.<\/p>\n
The funds allocated for the sector of health and social
\nwelfare are intended to broaden the coverage of basic health
\nservices for the poor, homeless children, elderly citizens, the
\nhandicapped, socially disadvantaged persons, as well as for the
\nvictims of natural disasters and social unrest.<\/p>\n
Hence, the budget allocation also serves as an effort to
\nimprove the people's income through job creation. Such an effort
\nwill be decided mostly by the people themselves, while the
\ngovernment will facilitate the program through the improvement of
\ninfrastructure.<\/p>\n
The funds allocated for the agriculture, fishery and
\nirrigation sectors are intended to strengthen food sufficiency
\nthrough the improvement of food and fishery production, the
\nenhancement of production and consumption diversification, the
\nempowerment of farmers and rural people through the distribution
\nof farm inputs such as seeds, fertilizers, medicines, and the
\nexpansion of market network and the improvement of supervision
\nand information services. For the irrigation subsector, the funds
\nare mainly directed for the maintenance and rehabilitation of
\nirrigation networks.<\/p>\n
The funds for the transportation and communication sectors are
\naimed at maintaining and rehabilitating the facilities and
\ninfrastructure for transportation services to ensure safe
\ntransportation and facilitate services to remote areas.<\/p>\n
Accordingly, these four sectors I earlier expounded on, namely
\neducation, health and social welfare, agriculture, fishery,
\nirrigation, transportation and communication sectors, together
\ntake up 61.3 percent of the total budget.<\/p>\n
Besides aiming at improving the people's welfare, the central
\ngovernment budget is also directed at creating good governance,
\npublic order and security. To this end, the law and defense and
\nsecurity sectors also deserve a significant increase of budget of
\n48.4 percent and 40.9 percent, respectively.<\/p>\n
The budget in the legal sector will be utilized to improve law
\nenforcement by cracking down on KKN and human rights abuses,
\nenforcing discipline in law enforcers, creating a clean judiciary
\nand respect for human rights, and continuing the process of
\nlegislation within the framework of economic recovery.<\/p>\n
While the budget for the defense and security sector will be
\nspent for anticipating disturbances of security and public order
\nby providing adequate equipment to enforce law and order as well
\nas preventing crimes.<\/p>\n
State expenditures on various sectors I previously dwelled
\nupon form only some parts of the government undertakings as
\nvarious other development activities will be implemented by
\nregional governments. To support these programs, the government
\nsets aside an amount of Rp 90.3 trillion for balanced funds.
\nDespite the fact that it is the regions which have the full
\nauthority to utilize the funds, I hope that the budget will be
\nspent in accordance with their scope of responsibility based on
\nthe principles of regional autonomy.<\/p>\n
In total, government expenditures, including the balanced
\nfunds for the regions, total Rp 332.4 trillion. Accordingly, the
\nbudget deficit for 2002 is expected to reach Rp 43 trillion or
\n2.5 percent of GDP. This figure is less than the 3.7 percent
\nestimated for the current fiscal year. The smaller deficit allows
\nthe government to decrease new foreign borrowings in line with
\nthe commitment to fiscal sustainability.<\/p>\n
The financing of the deficit will be derived from both
\ndomestic and foreign resources. Domestic resources for financing
\nare the proceeds from the privatization of state-owned companies
\nand sales of the assets managed by IBRA. The privatization of
\nstate-owned enterprises will be executed in a more selective
\nfashion and is estimated to contribute Rp 4.0 trillion to the
\nstate budget, while asset sales by IBRA are targeted to reach Rp
\n21.5 trillion.<\/p>\n
These are the main programs of the government, including the
\nproposed budget. We have a huge amount of homework and a tough
\ntask ahead, while difficult choices have to be made. However,
\nonly with the spirit of togetherness, mutual help and high
\ndiscipline in implementing our common commitment will, we hope,
\nall these problems, God willing, be solved, to lead us to a
\nbetter future.<\/p>\n
With the same spirit, we will fully cooperate with the House
\nto deliberate the draft budget for the 2002 fiscal year. I hope
\nthe deliberation can be concluded according to the schedule so
\nthat regional governments will have ample time to formulate their
\nrespective budgets, ready for implementation early next year.the distribution
\nof farm inputs such as seeds, fertilizers, medicines, and the
\nexpansion of market network and the improvement of supervision
\nand information services. For the irrigation subsector, the funds
\nare mainly directed for the maintenance and rehabilitation of
\nirrigation networks.<\/p>\n
The funds for the transportation and communication sectors are
\naimed at maintaining and rehabilitating the facilities and
\ninfrastructure for transportation services to ensure safe
\ntransportation and facilitate services to remote areas.<\/p>\n
Accordingly, these four sectors I earlier expounded on, namely
\neducation, health and social welfare, agriculture, fishery,
\nirrigation, transportation and communication sectors, together
\ntake up 61.3 percent of the total budget.<\/p>\n
Besides aiming at improving the people's welfare, the central
\ngovernment budget is also directed at creating good governance,
\npublic order and security. To this end, the law and defense and
\nsecurity sectors also deserve a significant increase of budget of
\n48.4 percent and 40.9 percent, respectively.<\/p>\n
The budget in the legal sector will be utilized to improve law
\nenforcement by cracking down on KKN and human rights abuses,
\nenforcing discipline in law enforcers, creating a clean judiciary
\nand respect for human rights, and continuing the process of
\nlegislation within the framework of economic recovery.<\/p>\n
While the budget for the defense and security sector will be
\nspent for anticipating disturbances of security and public order
\nby providing adequate equipment to enforce law and order as well
\nas preventing crimes.<\/p>\n
State expenditures on various sectors I previously dwelled
\nupon form only some parts of the government undertakings as
\nvarious other development activities will be implemented by
\nregional governments. To support these programs, the government
\nsets aside an amount of Rp 90.3 trillion for balanced funds.
\nDespite the fact that it is the regions which have the full
\nauthority to utilize the funds, I hope that the budget will be
\nspent in accordance with their scope of responsibility based on
\nthe principles of regional autonomy.<\/p>\n
In total, government expenditures, including the balanced
\nfunds for the regions, total Rp 332.4 trillion. Accordingly, the
\nbudget deficit for 2002 is expected to reach Rp 43 trillion or
\n2.5 percent of GDP. This figure is less than the 3.7 percent
\nestimated for the current fiscal year. The smaller deficit allows
\nthe government to decrease new foreign borrowings in line with
\nthe commitment to fiscal sustainability.<\/p>\n
The financing of the deficit will be derived from both
\ndomestic and foreign resources. Domestic resources for financing
\nare the proceeds from the privatization of state-owned companies
\nand sales of the assets managed by IBRA. The privatization of
\nstate-owned enterprises will be executed in a more selective
\nfashion and is estimated to contribute Rp 4.0 trillion to the
\nstate budget, while asset sales by IBRA are targeted to reach Rp
\n21.5 trillion.<\/p>\n
These are the main programs of the government, including the
\nproposed budget. We have a huge amount of homework and a tough
\ntask ahead, while difficult choices have to be made. However,
\nonly with the spirit of togetherness, mutual help and high
\ndiscipline in implementing our common commitment will, we hope,
\nall these problems, God willing, be solved, to lead us to a
\nbetter future.<\/p>\n
With the same spirit, we will fully cooperate with the House
\nto deliberate the draft budget for the 2002 fiscal year. I hope
\nthe deliberation can be concluded according to the schedule so
\nthat regional governments will have ample time to formulate their
\nrespective budgets, ready for implementation early next year.<\/p>",
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