Plugging budget hole<\/p>\n
Securing the state budget is becoming more difficult at a time
\nwhen public spending has become the only locomotive expected to
\nfuel economic activities and offset the brunt of last year's 14
\npercent contraction in the economy. Capital inflow is virtually
\nnonexistent, at least until after the election and installment of
\na new government later this year. Domestic investment is not
\nprospective, either, because the banking industry, which has
\nceased lending since last year, will likely remain moribund until
\nthe completion of its restructuring in June.<\/p>\n
The 1999\/2000 State Budget starting in April, although trimmed
\nto a bare-bones spending plan similar to the current one, will
\nhave to finance more than 35 percent of its spending with foreign
\nloans because internal revenue has decreased sharply amid the
\ncountry's worst economic recession of the past 32 years. This
\ndependence may even increase should the internal income
\nprojections, assessed by most analysts as too optimistic,
\nespecially in regard to tax receipts and earnings from the sale
\nof state companies, fail to meet targets.<\/p>\n
Japan's pledge of US$2.4 billion in new aid last week under
\nthe Miyazawa Plan for five Asian countries is a great help to
\nmeet state budget needs. But the shortfall remains big, though
\nthe country's creditor consortium, the Consultative Group on
\nIndonesia (CGI), earlier pledged $4 billion in project aid.
\nAlmost another $4 billion has yet to be secured in order to plug
\nthe budget hole of $10.3 billion<\/p>\n
But foreign borrowing is no longer as easy as the period of
\nrobust economic growth enjoyed until 1996. As the country is
\nalready saddled with more than $135 billion in foreign debt, more
\nthan twice its annual exports, its credit rating, particularly
\nnow in the tumultuous period of transition to a new
\nadministration, is not viable to enable the government to tap the
\nfinancial market. Hence, government donors and multilateral
\ncreditors, including the World Bank, Asian Development Bank and
\nInternational Monetary Fund, which are all grouped in CGI, are
\nthe only source of foreign funds available to cover the budget
\ndeficit.<\/p>\n
A great amount of lobbying will be required to talk CGI
\nmembers into putting up additional aid to meet the remaining $4
\nbillion shortfall at their next annual meeting in Paris in July,
\none month after the general election. It is a tall order indeed,
\ndespite the rapport Indonesia has nurtured with its creditors.
\nOnly last September, sovereign members of CGI agreed to
\nreschedule up to 20 years $4.2 billion in principal payments on
\npast debts due in the current and next fiscal years.<\/p>\n
There is no alternative for convincing creditors of the
\nlegitimacy of Indonesia's plight and maintaining their sympathy
\nbut for the government to fully take heed of the warning conveyed
\nat the CGI preliminary meeting in Jakarta last month. The
\ncreditors reiterated that further aid to the country is
\nconditional to continued strong and realistic reform measures
\ndespite the potential political mine fields ahead.<\/p>\n
The message of caution is especially relevant in the run-up to
\nthe June election when the government -- faced with the
\npotentially explosive interaction between social and political
\ndevelopments -- is prone to act in short-term interests by
\ndispensing political goodies at the great expense of the long-
\nterm good of the economy. There is also a great danger that the
\ngovernment may slack off on key, painful reforms such as the
\nreduction of subsidies, the bank restructuring program and other
\nmuch-needed structural measures.<\/p>\n
Though the creditors did not explicitly state it in their
\nadvice, it is nonetheless imperative that the holding of the June
\n7 general election be successful, which translates into honest
\nand fair. The slightest doubt about the results could deprive the
\nnation of the international support it has enjoyed thus far.
\nTaxpayers, who after all foot the bill for their governments'
\nforeign aid, will be simply unwilling to help a government
\ninstalled through a questionable, not to say rigged, election.<\/p>",
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"sponsor": "Okusi Associates",
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