2003 deficit widens on higher subsidy

The Jakarta Post, Jakarta

Minister of Finance Boediono said that the 2003 state budget deficit was expected to widen to 2 percent of gross domestic product (GDP) due to rising expenditures and falling revenues.

He told legislators during a budget hearing on Tuesday that the deficit would hover around Rp 35.1 trillion (about US$4.23 billion), instead of the Rp 34.4 trillion as hoped for when last year's budget was being planned.

The original target was 1.8 percent of GDP.

Boediono said that the higher-than-expected deficit came as a result of higher full-year expenditures to Rp 372.9 trillion from the target of Rp 370.6 trillion, citing larger allocations for subsidies and provincial budget needs.

"Oil subsidies for instance, will increase from Rp 13.2 trillion to Rp 26 trillion, and so will the spending on provincial administrations, which is expected to reach Rp 118 trillion instead of the initial target of Rp 116.9 trillion," Boediono said.

Global developments, which saw international oil prices rise sharply earlier this year, forced the government to make adjustments as it had to pay more for subsidies for the fuel sold on the domestic market.

While the government's spending was greater than the initial targeted amount, Boediono said that to make matters worse -- some of the revenue targets had fallen short.

Included in those revenue shortfalls were the privatization program, foreign loans and taxes collected.

While the privatization program is expected to bring only Rp 6.2 trillion in, down from the Rp 8 trillion target, there would be also a shortfall in tax revenues which had been earmarked at Rp 241.7 trillion, but will probably only reach Rp 235.9 trillion.

This was mainly the result of a mismatch between the realization and initial assumptions of the exchange rate and interest rate, which cut income taxes, value added taxes, and land and building taxes. The lower interest rate, for instance, has caused a lower tax revenue from interest on bank time deposits.

"It's the combination of those missed targets in the revenue and expenditure side that push the deficit wider," Boediono claimed.

Tuesday's hearing was the first in a series of hearings aimed at the state budget and if it is feasible in light of the latest economic situation, both domestically and globally.

Since the deficit will be greater than earlier expected, the government has set up some rescue measures to make sure it can plug that deficit.

To increase the deficit financing domestically, the government is now planning to raise its bond issues this year, from Rp 7.7 trillion to Rp 11.7 trillion. Since some Rp 2.7 trillion worth of bonds have been issued so far, the government still needs to issue another Rp 9 trillion worth of bonds before Dec. 31.

Proceeds from the sale of assets under the Indonesia Bank Restructuring Agency (IBRA) would likely be increased to Rp 21.3 trillion from Rp 18 trillion, while allocations to buy back maturing bonds would be reduced from Rp 13.5 trillion to Rp 9.4 trillion.

So far this year, the government had bought back up to Rp 3.25 trillion worth of maturing bonds.

Elsewhere, as for other assumptions, the government remained upbeat that all would remain achievable.

More hearings will be held in the coming days to seek opinions on part of legislators on the government's planned 2003 budget revisions.