2001 draft budget revised

The revised 2001 state budget proposal, which was approved by the House of Representatives on Tuesday, increases total spending by about 7 percent to Rp 315.75 trillion (US$40.48 billion at the average rate of Rp 7,800 per dollar assumed for the fiscal year beginning in January). But the increased spending will not increase the Rp 52.5 trillion budget deficit envisaged in the original proposal due to significant changes in basic assumptions for several major items.

The government, the House and most analysts agree that the new assumptions are more realistic considering recent trends, current values and forecasts of the key variables that are most influential to the major budget items.

The most important revision affecting state revenues is the increase in the projected oil price average to $22/barrel from $20/barrel. That will increase tax receipts from the hydrocarbon sector by Rp 3.2 trillion. Other significant changes include a Rp 2 trillion improvement in value added tax receipts and a Rp 2.5 trillion gain in dividend payments from state companies. The most notable change on the spending side is a Rp 2.33 trillion decrease in domestic debt service resulting from the planned withdrawal of Rp 10 trillion in treasury bonds from recapitalized banks in exchange for current loans.

However, it should not be construed that the larger budget, providing for a Rp 10.62 trillion expansion in development (investment spending), will provide a big stimulus to the economy. Public-sector spending will remain contractive on the economy, unable to stimulate new purchasing power, because more than Rp 130.5 trillion of the total spending will go to subsidies and servicing foreign and domestic debt. Another Rp 75.5 trillion will be collected through income tax from individual and corporate taxpayers.

The fundamental question then remains: How can private investment, which has remained on the sidelines awaiting a more secure and stable political environment, be expected to generate the 5 percent growth targeted for next year?

These concerns notwithstanding, the expansion in development spending to Rp 44 trillion should be highly welcome, especially in view of the sharp reduction in expenditures for maintenance and development of basic infrastructure since early 1998 that has caused great concern for the general health of the economy and public safety.

Not revised, and still disappointing though, is the revenue target for asset sales and debt restructuring by the Indonesian Bank Restructuring Agency (IBRA) of Rp 27 trillion. Assuming that only 40 percent or Rp 250 trillion of the Rp 650 trillion (book value) in assets held by IBRA can eventually be recovered, the target represents only about 10 percent of the recoverable total. This means that IBRA may need 10 years to dispose of all the assets, much longer than its five-year mandate that expires at the end of 2003.

While giving credit to the House for their hard work of almost two months of budget deliberations and for the more realistic projections assumed for the state budget, something quite important was nevertheless missing from the budget debates. Especially disappointing was the apparent lack of attention to the principle of transparency in spending items and to efforts to enhance good governance, top priorities of the Abdurrahman Wahid administration.

This does not mean that the House should debate spending items as though counting nickels and dimes. Yet for transparency and better accountability the deliberations should have also enlightened the general public of matters such as the annual budget of the President, Vice President, their working offices, and the House, just to cite some examples.

The budget debates also failed to shed light on how much the government will spend for the Supreme Audit Agency, government finance comptroller's office, the police, the Attorney General's Office and Supreme Court, whose role is so vital for enhancing good governance and strengthening law enforcement.

Budget control, one of the basic functions of the House, is designed not only to ensure justice and efficiency in the use of taxpayers' money but also to direct spending to top-priority programs. And clean and good governance and law enforcement, we think, are certainly in that category, especially during the current political uncertainty.