2001 draft budget revised

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.