Prijadi seeks House support to keep budget credibility<\/p>\n
JAKARTA (JP): Minister of Finance Prijadi Praptosuhardjo has
\nasked the House of Representatives for political support to
\nmaintain the credibility of the 2001 state budget.<\/p>\n
Prijadi said on Tuesday that a credible fiscal policy would
\nhelp revive the confidence of the business sector and the
\nfinancial market, a crucial element in achieving economic
\nrecovery.<\/p>\n
\"Based on experience implementing the 2000 state budget,
\ndevelopment on the economic, social and political fronts can
\ncause a policy that has been approved by the House, such as the
\nplan to raise fuel prices, cannot be realized,\" he told
\nlegislators during a plenary session to approve next year's state
\nbudget.<\/p>\n
\"The government is asking all parties, particularly the
\nsupport of the House, to maintain the credibility of the
\n(government) fiscal policy,\" he added.<\/p>\n
The government initially planned to raise fuel prices by about
\n20 percent in April 2000, as demanded by the International
\nMonetary Fund (IMF), but due to strong political opposition, the
\nplan was delayed until October and lowered to 12 percent.<\/p>\n
The IMF is providing the current administration with about
\nUS$5 billion in bailout cash to help finance the country's three-
\nyear economic reform program.<\/p>\n
Fuel is a politically sensitive commodity for this country,
\nwhich has a population of over 200 million. The increase in fuel
\nprices in 1998 helped topple former president Soeharto.<\/p>\n
The government will gradually reduce the fuel subsidy, raising
\nthe price of the heavily subsidized commodity, to help reduce the
\nburden of the state budget and create an efficient economy.<\/p>\n
The government is planning another increase in fuel prices of
\nabout 20 percent in April.<\/p>\n
Prijadi also asked the House to help maintain political
\nstability as a precondition for the market to respond positively
\nto the government economic policy, including the fiscal policy.<\/p>\n
He said that during the past three years, investors had yet to
\nmake a positive response to government economic policies, partly
\ndue to the absence of political stability, security and legal
\ncertainty.<\/p>\n
\"Without a conducive environment, the economic growth target
\nof 5 percent (for 2001), which is expected to come from
\ninvestment activity and exports, will be difficult to achieve,\"
\nhe said.<\/p>\n
President Abdurrahman Wahid has come under strong attack from
\ncertain groups in the legislature over his alleged involvement in
\na financial scandal that may lead to his impeachment. The rupiah
\nhas been seriously affected by this political development.<\/p>\n
The House approved on Tuesday the 2001 state budget, which
\nruns from January to December.<\/p>\n
The budget has seen some changes compared to the first draft
\nproposed by the government in October after it was debated by the
\nHouse special team.<\/p>\n
The assumptions in the 2001 state budget are as follows: the
\nexchange rate of the rupiah is set at Rp 7,800 to the U.S.
\ndollar; inflation at 7.2 percent; economic growth at 5 percent;
\nthe oil price at $24 per barrel; and the interest rate of Bank
\nIndonesia SBI promissory notes at 11.5 percent.<\/p>\n
The total revenue of the 2001 state budget is set at Rp 315.76
\ntrillion ($40.48 billion), with a budget deficit of about Rp
\n52.53 trillion, or equal to about 3.7 percent of the gross
\ndomestic product (GDP).<\/p>\n
The deficit will be financed by foreign loans, privatization
\nproceeds of about Rp 6.5 trillion and proceeds from the sale of
\nassets under the Indonesian Bank Restructuring Agency (IBRA) set
\nat Rp 27 trillion.<\/p>\n
The 2001 state budget will still be heavily burdened by the
\nhuge cost of the country's bank recapitalization program. The
\ngovernment has raised about Rp 650 trillion worth of bonds to
\nfinance the program, and the interest cost of the bonds that must
\nbe covered by the state budget is estimated at Rp 53.46 trillion
\nnext year.<\/p>\n
Separately, Prijadi also reported to the House budget
\ncommittee that the various assumptions and target set in the 2000
\nstate budget were either beyond or below projection.<\/p>\n
He said this was due to the weakening of the rupiah's exchange
\nrate and the higher oil price.<\/p>\n
Prijadi said the realized assumption figures in the nine-month
\n2000 state budget ending in December were as follows: the actual
\nexchange rate of the rupiah was at an average of Rp 8,292 to the
\ndollar (versus the budget figure of Rp 7,000); the average oil
\nprice was $29.05 per barrel ($20 per barrel); economic growth of
\n4.5 percent (3.8 percent); inflation of 7 percent (4.8 percent);
\nand interest rate of 12.6 percent (11.6 percent).<\/p>\n
He also said the 2000 budget deficit was estimated at 3.2
\npercent of the gross domestic product compared to the projection
\nof 4.8 percent of GDP. (rei)<\/p>",
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