State budget not meant to cure economic crisis<\/p>\n
The government has unveiled a draft budget worth Rp 218.2
\ntrillion (US$27.27 billion) for fiscal 1999\/2000, with a deficit
\nof Rp 77.40 trillion which will be covered by foreign aid.
\nEconomist Kwik Kian Gie comments on the planned budget, which
\nwill mark a 17.3 percent decline from the level of the current
\nfiscal year.<\/p>\n
JAKARTA (JP): Indonesian economists mostly agree that the
\ncountry's current economic crisis has been caused by
\noverinvestment but they are divided over whether such a crisis
\ncan be cured.<\/p>\n
Some of the economists say that the crisis, marked by economic
\ndepression, can be overcome by propping up the purchasing power
\nof society. Perhaps they are right, but how can the country
\ngenerate fresh funds to help increase this purchasing power when
\nthe economy has been in a situation of overinvestment?<\/p>\n
The overinvestment was caused by excessive flows of foreign
\nloans aimed at compensating for the country's lack of domestic
\nsavings. As the debts have accumulated in abundance, foreign
\ninvestors are doubtful whether the domestic borrowing parties can
\nrepay their borrowings. That is why some foreign capital has been
\nflowing out of the country again, while the inflow of foreign
\ninvestment is at a halt now.<\/p>\n
The only foreign investment that can be expected to enter the
\ncountry at present is aid for the government because large
\ndomestic corporations are still facing problems in paying off
\ntheir huge offshore debts. But the government's capacity to
\nabsorb foreign aid has a limit beyond which donors will doubt its
\ncapability of repaying its debts.<\/p>\n
However, within such a condition some prominent economists
\nhave surprisingly suggested that Indonesia continues to increase
\nits foreign debts to reinvigorate the economy. This can be seen
\nfrom the government's budget plan.<\/p>\n
In a bid to reinvigorate economic activities, the government
\nis trying to introduce a deficit budget for 1999\/2000. Even
\nthough the total budget will decline in absolute terms (to Rp
\n218.2 trillion in 1999\/2000 from Rp 263.88 trillion estimated for
\n1998\/1999), it will be expansive in nature because the
\ngovernment's domestic spending will be bigger than the funds it
\nplans to generate from local sources. It expects to finance part
\nof its spending with foreign aid, which is projected to reach
\n$11.2 billion. The draft budget does not clearly state whether
\nthe aid will be totally derived from its traditional donors --
\ncountries and organizations associated with the Consultative
\nGroup for Indonesia (CGI).<\/p>\n
The increase in foreign aid will surely bolster inflation
\nrates, which have already been boosted by the printing of large
\nsums of money for the financing of support loans to ailing
\ncommercial banks. The International Monetary Fund (IMF) has now
\ntold Indonesia to stop printing new additional money.<\/p>\n
The House of Representatives (DPR) has also criticized the
\ngovernment's draft budget because it is unrealistically expecting
\na high increase in domestic revenue from taxation.<\/p>\n
To help increase the government's revenue from domestic
\nsources, the Econit economic advisory group suggested last week
\nthat the government intensify fund raising from the forestry and
\nplantation sectors.<\/p>\n
It is possible to take measures to increase the government's
\nrevenue from these two sectors but such measures will not be
\nrelevant to the state budget for 1999\/2000. Introducing new
\nmeasures to increase the collection of funds from the two sectors
\nwill take a long time and require drastic changes in the morality
\nof all parties concerned. Those parties will have to change their
\norientation from rent-seeking to honest practices to uphold the
\ninterests of the nation.<\/p>\n
The proposals above indicate that many economists still
\nbelieve that the economic crisis, which has been caused by
\noverinvestment, can be cured and they, therefore, are still
\ntrying to look for a quick solution to it. However, they will
\nalways find difficulties in looking for sources of fresh funds.<\/p>\n
So, the best theory to face the current crisis is \"just wait
\nuntil a new equilibrium is achieved at the lowest level.\" The
\ngovernment and other parties cannot do much to overcome the
\ncrisis before the new equilibrium is achieved.<\/p>\n
Therefore, DPR members must be careful and bear these
\nconsiderations in their mind when they have meetings with the
\ngovernment for the deliberation of the draft budget, which will
\nbe used as an instrument to control the country's macroeconomy.<\/p>\n
Whether or not the projections on inflation, oil prices,
\neconomic growth, exchange rates, etc. used to make calculations
\nfor the planned budget are realistic cannot be judged at present
\nbecause it is very difficult now to predict future economic
\ndevelopments.<\/p>\n
It is also difficult to judge whether or not the allocations
\nof funds under the planned budget are in the people's favor
\nbecause any judgment will depend on different interests.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/state-budget-not-meant-to-cure-economic-crisis-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}