2000 budget approved
2000 budget approved
The House of Representatives has once again demonstrated that
it is no longer the rubber stamp for every government policy as
it was for the past 30 years. The House approved the 2000 state
budget plan on Thursday only after more than one month of
vigorous debates and only after making many substantial changes
in the final version of the budget.
But a big question remains as to whether the changes in the
various items of expenditures and revenue are for the good of the
economy or whether the revisions will instead affect the
credibility of the budget plan. The market welcomed the budget
proposal as pragmatic when it was unveiled to the House in mid-
January.
The final budget plan maintains most of the original
assumptions made in January, such as economic growth of 3.8
percent, inflation of 4.8 percent and an average exchange rate of
Rp 7,000 to the dollar for the April to December 2000 period.
But the assumption for the average oil export price, one of
the most important elements of the budget, was revised upward
from US$18 per barrel to $20 per barrel. Given the significant
role of oil and natural gas as a source of state revenue, the
change substantially increases the estimate for total revenue
from the hydrocarbon sector by Rp 5.7 trillion ($814 million,
based on an exchange rate of Rp 7,000 to the dollar).
A $20 average international price for crude oil for April to
December appears realistic since international oil prices have of
late been hovering between $28 and $30 per barrel. Even though
the Organization of Petroleum Exporting Countries will decide to
increase its production quota at its annual meeting later this
month, succumbing to pressure from major consumers, such as the
United States, the average price will not likely fall to below
$20. Last year, for example, Indonesian oil export prices rose
from a range of $15.12 to $19.68 between April and August to
$21.86 to $24 between September and December.
Most precarious, however, is the substantial increase made
for the revenue target to be raised by the Indonesian Bank
Restructuring Agency (IBRA) from its asset sales and the
privatization of state companies. Tasking IBRA to increase its
asset sales by Rp 2.6 trillion to almost Rp 19 trillion for the
nine-month period seems unrealistic, given the agency's poor
performance in the past year, the quality of the assets under its
management and bad experiences of foreign investors in dealing
with the agency. IBRA has thus far raised only about Rp 10.5
trillion of the Rp 17 trillion target set for the current fiscal
year ending later this month. The process of privatizing state
companies has also been bumpy and full of controversy.
Increasing revenue from dividend payments by state companies
of Rp 1.28 trillion to Rp 5.28 trillion is also risky in view of
the weak economic recovery.
Shedding off Rp 4.3 trillion from the Rp 42.36 trillion
originally estimated interest cost on treasury bonds for bank
recapitalization is also worrisome. True, this measure could
allow bigger appropriations for other spending but it would also
mean a delay in the issuance of bonds for bank restructuring,
which is so vital for a sustainable economic recovery.
The 12 percent increase in fuel prices, lower than the 20
percent proposed by the government in January, could minimize the
risk of mass social unrest. But this populist measure would
increase fuel subsidies by Rp 4.16 trillion to Rp 22.46 trillion.
One would therefore see the revised budget with a sense of
foreboding. The significant boost in budgeted domestic revenue
which prompted the government and the House to agree on
substantial increases in fuel subsidies, personnel spending to
meet pay rises and development (investment spending) depends on
several revenue assumptions that are highly prone to
overestimation.
It is therefore most imperative that both the House and the
government closely and carefully monitor the budget
implementation and should not hesitate to act firmly and speedily
to make adjustments to actual developments.