State budget proposal for 1995-96<\/p>\n
President Soeharto yesterday unveiled the annual draft state
\nbudget before a plenary session of the House of Representatives
\n(DPR). Transcript of the budget appears in a condensed unofficial
\ntranslation form on this page and Page 5.<\/p>\n
JAKARTA: As a nation, we ended the year 1994 full of hope and
\njoy. We have achieved considerable progress, although we still face
\nmany problems and challenges.<\/p>\n
There was quite a severe draught during the second semester of
\nlast year. Consequently, the growth of the agricultural sector is
\npredicted to be rather slowed and we may not be able to reach the
\ntargeted growth of 3.3 percent.<\/p>\n
On the other hand, the industrial sector shows more encouraging
\ngrowth. Our effort in driving the industrial sector as the motor of
\ndevelopment has shown results.<\/p>\n
Export growth was a bit depressed, such as illustrated by the
\nrelatively slow growth of exports compared to the previous year.
\nMeanwhile, imports have increased, especially non-oil\/gas.<\/p>\n
Based on this illustration, economic growth in 1994 is expected
\nto surpass that of 1993, namely 6.5 percent. With this trend, the
\ntarget of economic growth in the first year of Repelita VI of 6
\npercent will be quite far surpassed. We are also going to exceed the
\ntargeted average economic growth rate of 6.2 percent in Repelita VI
\n(Sixth Five Year Plan, 1994-1999).<\/p>\n
The prospect of our economy in 1995 is predicted to remain
\npromising. Various opportunities for higher economic growth are
\npresenting themselves.<\/p>\n
Investment is expected to continue to increase. The
\nderegulation on investment, industry, trade, banking and others
\nadopted during these last few years has already shown some results.
\nApart from directly raising national production, the increase in
\ninvestment also serves as a catalyst and stimulus for other
\nactivities that will, in the end, generate greater economic
\nmovement. Increased investment will also expand employment
\nopportunities, which means raising the people's income.<\/p>\n
The prospect of exports is also quite heartening. We hope the
\npace of our exports will rise again this year. A number of
\nopportunities will emerge because the world economy -- which has a
\ngreat influence on our export growth -- tends to be improving in
\n1995.<\/p>\n
We estimate the production sector will have better growth
\ncompared to last year's. We hope there will not be any prolonged dry
\nspell this year, so the agricultural sector will have a better
\ngrowth. We also hope our continuous efforts to stimulate the
\nindustrial sector will bring about even greater results, so we can
\nmeet the demand of our own domestic market and increase exports.<\/p>\n
We have to prevent any disturbances to economic stability,
\nbecause it will be a setback or a hindrance to the smooth
\nimplementation of development. This is the reason why we must never
\nbe negligent. We have to take into consideration all possibilities
\nand take the correct policy measures to ensure continued economic
\nstability.<\/p>\n
In 1994, inflation was 9.24 percent. Although it remains one
\ndigit, it was already to high, much higher than the projected
\nestimate of 5 percent for Repelita VI.<\/p>\n
The somewhat overheated economy was also exemplified by the
\ncurrent account deficit. Until the third trimester of 1994, the
\ncurrent account deficit was estimated to reach around US $2.2
\nbillion. This was quite a substantial increase compared to that of
\nthe same period in the previous year. This was caused by the slower
\nexport growth and increased imports, besides the service expenses
\nthat have also risen. The current account deficit for the year 1994
\nwill e greater than for 1993. Whereas the foreign exchange reserves
\ncan still be maintained for five months of imports.<\/p>\n
We must also be constantly cautious in dealing with the issue
\nof foreign debts. Development requires substantial investment funds
\nand this cannot be totally provided by domestic resources. Therefore
\nwe see to it that external funding remain complementary. The greater
\namount of debts that reaches maturity, especially Government debts,
\nthe debt-servicing will increase. What we have to watch carefully is
\ndebts incurred by the private sector, which often is difficult to
\npredict. We are adopting a free foreign exchange system and in an
\nincreasingly open global economy, there will be a swifter capital
\nflow.<\/p>\n
We must pay serious attention to what I have just mentioned, to
\nensure that our economic growth, which is expected to remain high,
\nwill not become counter-productive. We all have to see to it that
\nthe high economic growth rate is in tandem with a robust economy,
\nthat brings benefits to the society, namely an even greater
\nprosperity.<\/p>\n
Production capabilities alone will not surface. It must also be
\naccompanied by the ability to compete, both at home and in the
\ninternational market. The issue of protection has been widely
\ndiscussed during these last few months. This issue is closely
\nrelated to our competitive capabilities. Obviously, a strong
\ntechnological base and solid economy are needed for establishing a
\nstrong and dependable industry. This is especially true in a
\nsituation and where global competition is becoming more fierce.<\/p>\n
Our horizon must reach far ahead in planning such an
\nindustrialization strategy. We want to build a reliable and self-
\nsupporting national industrial structure, strong enough to withstand
\neven the severest competition. For this purpose, our industrial base
\nmust be strong. From upstream to downstream, our industry must be
\nsolidly connected so as to ensure its competitiveness and self-
\nreliance.<\/p>\n
Therefore, we should not hesitate to build upstream industries,
\nif it is really needed to establish strong national industry. We
\ntherefore have to study the economic prerequisites that enable the
\nsatisfactory growth of upstream and midstream industries. Protection
\nis just one of the mechanisms we can create if it is necessary, but
\nif must meet certain conditions. First, protection may given for a
\nlimited period and to be gradually reduced.The sooner the better.
\nSecond, protection must nor be contrary to international agreements,
\nsuch as GATT, AFTA and APEC. Third, the level of protection must not
\nstifle or hinder the growth of downstream industries. Excessive
\nprotection will result in higher production costs of downstream
\nindustries and, as a consequence, remove its competitive edge. I am
\nsure with such an understanding, the question of protectionism does
\nnot necessarily become a long drawn-out issue.<\/p>\n
The state budget contains problems we are facing, our
\ndetermination and concern, as well as the priorities we set in
\ncarrying out development. Thus, we may say the state budget is one
\nof the main instruments of a nation to reach its aspirations and
\nideals.<\/p>\n
The state budget reflects the very fundamental principle of the
\npeople's sovereignty in our life, because it is adopted with the
\nconsent of the people through their representatives in the House of
\nthe People's Representatives.<\/p>\n
The development policies must constantly be based on the
\nTrilogy of Development. Efforts must be made to maintain an
\nadequately high economic growth by relying on greater national
\nefficiency and productivity. The active participation of the society
\nmust be developed and motivated by the spirit of partnership in
\nbusiness. The fruits of development must be enjoyed more fairly and
\nequitably by the people. National stability ought to be solidly
\nmaintained. The three elements of the Trilogy of Development are
\nintertwined and must be harmoniously, integrally and complementary
\ndeveloped.<\/p>\n
Based on the message of the Guidelines of State Policy and by
\nfollowing development plans in Repelita VI, the 1995-'96 Draft State
\nBudget is thus prepared. Development in the second year of Repelita
\nVI is the continuation, intensification, expansion, reformation and
\ndeepening of development of the previous year, which is a
\nsustainable and gradual effort to reach the targets of Repelita VI.<\/p>\n
As development is being carried out by the people together with
\nthe Government, the state budget policy must generate, stimulate and
\npromote development activities by the people. This means development
\nactivities carried out satisfactorily by the people, especially by
\nthe private sector, if possible are not carried out by the
\nGovernment. However, the Government gives direction, support and
\nendorsement. Government investment is primarily aimed at development
\nactivities which are the tasks of the Government and can only be
\ncarried out by the Government, or are more efficient if carried out
\nby the Government.<\/p>\n
Thus, Government investment will be directed more to improve
\nthe quality of human resources, enhancing the quality of life of
\nIndonesian individuals and society and providing greater equitable
\ndistribution of development and poverty alleviation. The development
\nof the economic infrastructure remains important. Its development is
\naimed more at supporting the growth of various sectors, such as
\nindustry, agriculture and services, including tourism.<\/p>\n
In order to raise the efficiency and productivity of the
\ndevelopment budget, the procedure of drafting it continues to be
\nimproved, so development projects become truly linked with each
\nother, with a view to attaining the objectives of Repelita VI. At
\nthe same time, supervision will be intensified to ensure that
\ndevelopment proceeds efficiently and to avoid leaks and waste.<\/p>\n
The development budget is planned in two directions, namely
\nfrom top to bottom and from bottom to the top. It is drafted on the
\nbasis of national development policies, macro-economic
\nconsiderations and sectoral goals and priorities that are harmonized
\nwith regional potentials and aspirations, as well as taking into
\naccount the real situation in the field.<\/p>\n
With these basic ideas and considerations, the Government is
\nsubmitting to the Honorable House the 1995-'96 Draft State Budget to
\nthe tune of Rp 78 trillion. Compared to the current fiscal year,
\nthere is an increase of 11.9 percent.<\/p>\n
The domestic revenues are projected around Rp 66.3 trillion.
\nWhereas development revenues are expected to be around Rp 11.7
\ntrillion, consisting of foreign project aid. From this total about
\n85 percent are from domestic revenues and the balance of almost Rp
\n12 trillion are from development revenues.<\/p>\n
Domestic revenues consist of oil\/gas revenues estimated to be
\nRp 13.3 trillion, and non-oil\/gas revenues of Rp 53 trillion. This
\nmeans revenues from non-oil\/gas have increased by 80 percent,
\ncompared to 78.5 percent in 1994-'95. This shows the structure of
\nour state revenues has become stronger.<\/p>\n
For the current 1995-'96 Draft State Budget, the oil price is
\nset at US $ 16.50 per barrel. Indeed, we must continue to be careful
\nin calculating oil prices, because so many factors are influencing
\nthem and one cannot predict them accurately beforehand. Based on the
\nestimated oil price, the oil\/gas revenues are envisaged to rise by
\n3.3 percent from the current fiscal year. Based on this calculation,
\nrevenues from the net oil profit are estimated to reach around Rp
\n1.5 trillion.<\/p>\n
As a whole, revenues from non-oil\/gas are calculated to rise by
\n13 percent compared to current revenues. Tax revenues are expected
\nto increase by 12.3 percent, especially in the revenues from value-
\nadded tax, excise and land and building tax. With the coming into
\neffect of the new income tax tariff, it will only rise a slight
\namount, namely by 2.1 percent. In the long-and medium-terms, income
\ntax is expected to rise again as a result of greater economic
\nactivities of the people. Hopefully, investment will be stimulated
\nby regulations with more incentive based on the new tax system.
\nMeanwhile, revenues from non-tax are predicted to climb by 51.2
\npercent.<\/p>\n
As to routine expenditures, the total amount is envisaged to
\nreach Rp 47.2 trillion or an increase of 11.5 percent over the
\ncurrent expenditures. The majority of these routine expenditures is
\nallocated to personnel expenditures -- both civil servants in the
\ncentral and regional governments -- namely around Rp 23.3 trillion
\nor an increase of 18.3 percent.<\/p>\n
The Government realizes the importance of civil servants and
\nmembers of the Armed Forces in carrying out governmental tasks,
\ngenerating the wheels of development and safeguarding the nation.
\nThe Government is aware of its duty to raise the salary of civil
\nservants and members of the Armed Forces. However, the state
\nfinancial resources also remain limited. Therefore, the salary hike
\nof civil servants is also still modest. In this connection, the
\nGovernment has decided to raise the salary of civil servants,
\nmembers of the Armed Forces, pensioned civil servants and retired
\nArmed Forces soldiers and their widows by 10 percent.<\/p>\n
With the total domestic revenues and routine expenditures being
\nas I have just mentioned, public savings will be Rp 19 trillion,
\nwhich means an increase of 9.4 percent compared to the current
\nfiscal year. This amount is almost equivalent to the target set for
\nthe second year of Repelita VI.<\/p>\n
Development revenues from foreign aid are estimated to reach Rp
\n11.7 trillion. In the second year of Repelita VI, foreign aid is
\nanticipated to be Rp 11.4 trillion. This rather higher amount than
\noriginally projected for Repelita VI is due to better efficiency and
\nabsorption, so disbursement for the completion of projects receiving
\nforeign aid is faster.<\/p>\n
With total public savings and development revenues, the
\ndevelopment funds available are close to Rp 30.8 trillion, meaning
\nan increase of 12.4 percent receiving from the current one.<\/p>\n
There are ten sectors which have development budgets of over Rp
\n1 trillion, and there are 5 sectors among them receiving above Rp 2
\ntrillion. Sectors receiving development budgets exceeding Rp 2
\ntrillion are as follows: (1) regional development sector, including
\ntransmigration; (2) transportation sector, including meteorology and
\ngeophysics; (3) mining sector and energy; (4) education, national
\nculture, belief in God Almighty, youth and sports sector, and (5)
\nirrigation sector.<\/p>\n
The substantial budget for these sectors reflect development
\npriority in accordance with the message of the 1993 Guidelines of
\nState Policy, namely: in the economic sector through the development
\nof economic infrastructure and means -- particularly in the least-
\ndeveloped regions, rural areas and the eastern part of Indonesia --
\nas well as in sectors dealing with human resources.<\/p>\n
The industrial sector obtained a development budget of Rp 497
\nbillion.<\/p>\n
The industrialization process plays an important role in our
\nnational economic development, namely as a force for growth and
\nenhancement of more equitable income. This means that it must be
\nable to grow and develop into a highly competitive industry founded
\non equally strong industrial, technological and economic structures.
\nWhile simultaneously developing export-oriented primary industrial
\nproducts, efforts are continued to raise technological capabilities.<\/p>\n
The agricultural and forestry sector will receive a budget
\namounting to Rp 1.1 trillion.<\/p>\n
Agricultural development continues to play an important
\nand strategic role. In the structural transformation of our national
\neconomy, the contribution of the agricultural sector to the Gross
\nNational Product is indeed declining. However, the agricultural sector
\nremains the major retainer of the work force, producer of foodstuffs,
\nearner of foreign exchange and supporter of the industrialization
\nprocess, particularly in supplying raw and basic materials.<\/p>\n
Forestry development will give priority to the preservation of the
\nfunction of forest through the development of sustainable forest
\nmanagement system, diversification of forest use and products, as well
\nas enhancement of capabilities and participation of small- and medium-
\nscale businesses in forestry.<\/p>\n
Irrigation development is aimed at developing and managing water
\nresources in order to meet the demand for water for the people and
\nother sectors which need it. In addition, efforts are being made to
\npreserve the continuity of water supply, through the conservation of
\nsoil and water, preservation and control of water erosion, and
\nprevention of water pollution.<\/p>\n
The budget set for developing the irrigation sector will be more
\nthan Rp 2 trillion, a considerable increase by 21 percent. Most of it
\nor around 60 percent is allocated for areas outside Java.<\/p>\n
We understand that the improvement of the quality of human
\nresources and enhancement of national economic efficiency and
\nproductivity are inseparable from efforts to solve the problem of
\nmanpower. In this connection, a budget of around Rp 170 billion is
\nreserved for training activities to create and develop qualified,
\nproductive, efficient and effective manpower, imbued with
\nentrepreneurship, covering the training of technical, managerial and
\nentrepreneurial skills.<\/p>\n
The sector of trade, national business development, finance and
\ncooperatives are indeed important in a national economy which should be
\nmore efficient and highly competitive. A budget of approximately Rp 534
\nbillion is available. Activities in this sector are mostly conducted by
\nthe business community.<\/p>\n
We continue to provide a relatively big budget for the development
\nof physical infrastructure, especially roads and other transportation
\ninfrastructure and facilities. The development of physical
\ninfrastructure requires considerable funds because economic growth,
\nequitable distribution, national stability and the realization of the
\nArchipelagic Principle and National Resilience need adequate
\ntransportation networks to ensure the smooth flow of goods and
\nservices. The budget for this sector is Rp 5.9 trillion, most of which
\nwill be used for development of road infrastructure.<\/p>\n
Road development is designed to open isolated regions, border
\nareas and transmigration sites, as well as to sustain rapidly growing
\nrural development. Almost 60 percent of the funds for road
\ninfrastructure development is used for road infrastructure development
\noutside Java. The province outside Java which obtains the largest funds
\nallocation is Irian Jaya. In the coming fiscal year, we plan to build
\nmore than 1,100 kilometers of new roads, among others for the
\ncontinuation of the construction if a southern highway in Kalimantan,
\na western highway in Sulawesi, and highway in Seram and Irian Jaya.<\/p>",
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