State budget aims to revive economy<\/p>\n
JAKARTA (JP): President Abdurrahman Wahid's government
\nunveiled on Thursday its first state budget aimed at rebuilding
\nthe crippled banking sector, stamping out corruption and
\nplacating separatist movements in resource-rich provinces.<\/p>\n
The April-December 2000 budget draft still relies heavily on
\nforeign loans, despite attempts to boost domestic revenue but
\nallocates much bigger appropriations for the provinces.<\/p>\n
\"Starting in 2000, the aim is to reduce the size of the budget
\ndeficit and generate economic conditions which will, over time,
\nmove the economy toward a position of budget balance or surplus,\"
\nVice President Megawati Soekarnoputri said in a budget address to
\nthe House of Representatives.<\/p>\n
Because of his poor eyesight, Abdurrahman himself could not
\ndeliver his budget speech but he made an of-the cuff-statement to
\nintroduce the budget proposal before he asked Megawati to deliver
\nhis budget address.<\/p>\n
Most analysts saw the budget plan as realistic and the Jakarta
\nStock Exchange rose by 2.2 percent to close at 670.153 points in
\na positive reaction to the spending plan.<\/p>\n
The 2000 budget envisages total spending of Rp 183.07 trillion
\n(US$26.1 billion based on the Rp 7,000 rate assumed by the
\ngovernment for the next fiscal year), as against total revenue of
\nRp 137.69 trillion, thereby ending up with a deficit of Rp 45.37
\ntrillion or 5 percent of gross domestic product (GDP).<\/p>\n
The current state budget, ending on March 31, is estimated to
\npost a bigger deficit of 6.8 percent of GDP.<\/p>\n
The next budget will last only nine months as the government
\nwill align its fiscal year with the calendar year, beginning in
\nJanuary 2001.<\/p>\n
About half of the deficit is expected to be financed by
\nforeign loans and the remainder by the proceeds of asset sales by
\nthe Indonesian Bank Restructuring Agency (IBRA) and the
\nprivatization of state companies.<\/p>\n
The government expects to obtain some $4.1 billion in new
\nloans from major donors grouped under the so-called Consultative
\nGroup on Indonesia (CGI), which will convene for the first time
\nin Jakarta early next month.<\/p>\n
The government is also seeking to reschedule another $2
\nbillion in sovereign debts through the Paris Club of creditor
\nnations.<\/p>\n
The main source of government earnings will be tax revenues,
\nprojected at Rp 97.8 trillion or 71 percent of total revenue and
\nreflecting an increase of more than 23 percent over the
\ncomparable period in the current fiscal year.<\/p>\n
The budget allocates Rp 42.4 trillion, the largest single
\nexpenditure amount, for interest payments on government bonds
\nissued to finance the bank restructuring and recapitalization
\nprogram.<\/p>\n
The interest cost of the government bonds in the current 12-
\nmonth budget is Rp 34 trillion.<\/p>\n
Indonesia's banking sector has been badly hit by the economic
\ncrisis that started in the middle of 1997. The government has so
\nfar closed down 66 banks, nationalized 13 banks, recapitalized
\nstate banks and helped finance the recapitalization cost of seven
\nprivate banks. The government also guarantees the obligations of
\nthe closed down banks.<\/p>\n
The cost of the bank restructuring and the recapitalization
\nprogram, considered a key to economic recovery, is estimated at
\nmore than Rp 600 trillion.<\/p>\n
Foreign debt service burdens will amount to Rp 16.6 trillion,
\nassuming that $2 billion in foreign debts will be rescheduled
\nunder the Paris Club.<\/p>\n
The other large routine spending amount is for the salaries of
\ncivil servants, which is predicted to be around Rp 29 trillion,
\nor a 20 percent rise from the level in the comparable period in
\nthe current fiscal year.<\/p>\n
\"The salaries of the civil servants must be raised as part of
\nefforts to stem corruption in order to create good governance,\"
\nthe President said in his speech.<\/p>\n
The plans to raise the salaries of the civil servants has
\nbecome a controversial issue, following reports last week that
\nhigher ranking government officials would enjoy a much greater
\npay increase, by up to 400 percent.<\/p>\n
The government decided to let the House decide on the thorny
\nissue.<\/p>\n
The new budget assumes an economic growth of 3.8 percent this
\nyear, inflation of 4.8 percent, an average oil price of $18 per
\nbarrel and an average rupiah exchange rate of Rp 7,000 per U.S.
\ndollar.<\/p>\n
\"Gradually, should all structural readjustment programs be
\ncarried out properly as planned, economic growth is expected to
\narrive at the level of 6 or 7 percent within the next five
\nyears,\" Abdurrahman said.<\/p>\n
\"Moreover, this economic growth will be supported by stronger
\nfundamentals, for it is supported not only by the groups of
\nbusinesses but also by the society at large,\" he added.<\/p>\n
\"The healthier economy will also strengthen the state's budget
\nin the future ... The budget deficit is expected to decline from
\n5 percent of GDP in 2000 to become balanced in 2004,\" he added.<\/p>\n
Another sensitive issue, which will likely incite heated
\ndebates at the House, is the plan to raise fuel and electricity
\nprices by 20 percent and 30 percent respectively, in a bid to
\ndecrease subsidies.<\/p>\n
The 2000 budget sets aside Rp 26.6 trillion for subsidy
\npayments, mostly for fuel, electricity, food and concessional
\ncredit to farmers. The current budget envisages Rp 28.02 trillion
\nin subsidy spending.<\/p>\n
The government allocates a much bigger appropriation for
\nprovincial administrations and authorizes local administrations
\nto manage the bulk of public sector investment (development
\nspending).<\/p>\n
Four of the country's richest natural resource provinces,
\nincluding Aceh, Irian Jaya, Riau and East Kalimantan are
\nallocated especially large increases in development expenditure.<\/p>\n
The move is an apparent effort to ease separatist sentiments,
\nparticularly in the oil and gas-rich Aceh and mineral-rich Irian
\nJaya provinces.(rei)<\/p>",
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