... aim at curing economic and social ills

To improve the quality of primary and secondary education, the career development system for teachers and the effectiveness of the utilization of funds must be enhanced. The overlapping authorities between the Ministry of National Education and the Ministry of Home Affairs need to be abolished. With the transfer of authority from the central government to the regional governments, problems related to improving the quality of education and teachers' career development should be solved.

The role of the private sector in the tertiary education should continue to be widened. The autonomy of state universities needs to be extended to enable them to extract sources of educational funds and to develop their curricula, as well as to enable them to open the opportunities to forge cooperation with eminent overseas universities.

The government has a very important role to play in enhancing the capacity in mastering and applying technology because the market mechanism tends not to offer technology extensively. The cooperation between research institutions and the business circles absolutely needs to be elevated to create mutually beneficial synergy.

Efforts are also needed to attract more investors to regions. Needless to say, this depends greatly on the investment climate in the region and on the availability of economic infrastructures which, at the moment, are thought to be inadequate.

The concentration of activities, especially industrial activities, is mainly found near big cities in Java. Efforts should continue for more development outside Java, with the support of reliable local government.

The measure towards that end has begun to be taken by gazetting Law No 22 1999 on regional government and Law No.25 1999 on the central-regional financial balance, aimed at decentralization.

That truest meaning of decentralization in giving extensive autonomy to the region lies in the authorities with which decisions are made and services are rendered with the authorities.

With those authorities each of the regional governments is expected to develop its creativity, to produce various policies, to improve the quality of services, to bring into being a conducive climate for the empowerment of the community in various walks of life, and to develop infrastructures as well as social, economic and cultural means.

The discussion on the regional autonomy should not only focus on the division of incomes between the central government and regional governments. On one hand, such focus would cause dissatisfaction of those regions with large income potentials because the central government will find it difficult to satisfy their maximum demand, whereas at the same time the central government is responsible for managing the administration of the state government and for adopting a cross-subsidy for regions with small revenue.

On the other hand, the topic would also cause extensive worries in small-income regions, which constitute the majority in our country. Their hope for subsidies from the central government can evaporate the portion of income to be given by the central government to rich regions rises drastically.

While gradually adopting the central-regional financial- balance policy, the government should hope that the regional governments and its people, especially regions which do not have income derived from natural resources, can optimize their creative capabilities in executing and making use of the authorities to be accorded by the central government.

In the short term, an urgent measure to accelerate economic recovery is to maintain economic stability and restructure the banking and business sectors considered to be the roots of the causes of the crisis.

In the last two years, 1998 and 1999, to stabilize the exchange rate of the rupiah and to prevent hyperinflation from occurring a strict monetary policy was adopted which greatly limited the growth of the amount of money circulating.

In the mean time, the position of the state revenue and expenditure was designed to provide a fiscal stimulus so that the economy would not aggravate further. A state budget deficit policy was therefore adopted. However, in order that fiscal policies remained in harmony with monetary policies, deficit expenditures were not exercised by adding the amount of the circulating money, but by borrowing from overseas.

In line with signs of economic improvement, for the next one or two years to come, the fiscal, stimulus remains necessary, although it should be gradually lowered. In the mean time, the monetary policies should be rayed to enhance economic activities. Subsequently, in the following years people's economic activities are expected to be so recovered that the fiscal stimulus will be no longer needed and that, gradually; the state budget deficit can be abolished in order to achieve a fiscal condition which is more or less balanced enough to stimulate sustainability.

With the general macroeconomic stability being achieved, it is expected that economic growth will continue to prevail. Specifically, export-oriented companies are expected to be able to make advantage of the recovery momentum. The re-awakening of the national economy will give rise to the increase in domestic demands and people's purchasing power, and restore our self- confidence.

Equally important to maintain economic stability, an urgent endeavor is to overcome the roots of the causes of the crises. This amounts to remedying the economic institutions through efforts towards restoring the banking and business sectors.

Both endeavors constitute programs to restore the economy and lay the foundation for further sustainable development. The amounts of the insolvent credits owed by companies almost eradicated the room for banking movement. Without the flow of funds from banks, companies find it difficult to be active again as well as to meet their obligations to banks. To overcome impasse, bank restructuring and, simultaneously, company restructuring have been undertaken.

It is necessary to affirm that the bank's restructuring program is carried out by adhering to the principle of curbing cost to its minimum, at the same time continuing to protect millions of savers. Bank owners are the first in line to bear the cost. Efforts should also be maximally made to retrieve banking assets. Bank owners and bank managers as well as debtors who decline to cooperate and who are proven to have committed frauds should be brought to court.

All in all, the recapitalization funds have at present reached more than Rp 500 trillion, the bigger part being borne by the government. This means that the burden of the expenditures borne by the government in the coming years will indeed be very heavy. Thus, it is imperative that all of us be very serious in executing this highly important program. The Indonesian Banking Restructuring Agency (IBRA) has been given full authority to execute the restructuring of banks. Therefore, this agency must take a firm attitude and be able to work at a high speed with adequate results. The government is resolved to continue restructuring with a view to bringing into being a strong and sound national banking system able to operate in accordance with international standards.

The efforts towards mending the business sector by means of restructuring the private-sector's and the real sector's debts are directed to re-awaken and at the same time strengthen the capabilities of national business circles.

Up to now, all in all only a fraction of the private-sector debts has been successfully restructured through the Indonesian Debt Restructuring Agency (INDRA) and the Jakarta Initiatives. The settlement of the private sector's debts needs to be accelerated to revert the image of, as well as the international confidence in, the credibility of our national business. Up to now the restructuring of banks has been felt to be sluggish.

The principle held by the government in solving the problems of debts incurred by companies is one which does not take over the companies' debts. The government continuously endeavors to create a conducive condition for reaching an agreement mutually beneficial to the debtors and the creditors.

These endeavors include ensuring that the bankruptcy process progresses well, namely by enhancing the functions of the commercial court, by facilitating investment procedures, by settling tax obligations in cases of confiscating and merging businesses, and by developing a national policy in corporate governance.

To expedite the settlement of debts incurred by companies, which means supporting the bank restructuring process, an incentive has been designed, in which a debtor who is cooperative will be given debt reduction. This measure will be exercised in a very cautious manner. Debtors who are entitled are only those who have not committed any fraud such as mark-up and credit abuse. Only interests or fines, not the main debts are subject to reduced. As such, there is an incentive to complete the bank restructuring program by curbing the cost to its minimum.

Reform and economic recovery measures take time. Meanwhile, the impacts of the crisis have been gravely felt by most people. With the weak condition of the private sector, the interference of the government is needed. The instrument is the fiscal policy, the main program of which is the social safety net.

This explains why in the next one or two years, this program will be continued. Past weaknesses and shortcomings of the implementation of the social safety net will continue to be rectified on the basic of inputs from various circles, including feedbacks from the non-government organizations and the press.

The description above clearly shows that the fiscal policy has been designed with a view to lessening the people's burden and, in terms of macroeconomy, to prevent the economy from worsening. The dilemma is the fact that this rising need comes face to face with the limitation of revenues. External loans will still be needed.

Therefore, for the years to come a measure needs to be taken which will shift the policies in a gradual manner from the fiscal stimulus policy to sustainable fiscal capability policy. This will be done by enhancing the mobilization of domestic resources and upgrading efficiency and effectiveness of the use of budget funds.

Thus, it can be expected that loans, especially external loans, can be reduced. Various tax regulations, including tax incentives, have been scrutinized in a comprehensive manner, to strengthen and raise tax revenues.

Budget expenditures, particularly for projects funded with external loans, need to be scrutinized in a comprehensive manner and priorities need to be carefully set. If projects whose funding has been approved turn out to have hurdles in the preparation of their execution and to be bad in terms of performance, they should be canceled.

Subsequently, new loans, either by the central government or by the regional government, should be adjusted with the budget ability to repay and the loans should be used for productive economic activities only, the implementation of which should be transparent, effective and efficient.

Another endeavor in the economic recovery program is to conduct a restructuring and privatization program for state-owned enterprises. This aims at making state-owned enterprises with poor performance more effective by elevating their efficiency, profitability and service quality to create the foundation for their growth. This will also strengthen the state's financial capabilities, widen their ownership, and reinforce the real sector.

The other item of the development agenda is the economic reform. To create more just and equitable opportunities for the people, concurrently creating more efficient and shock-proof economy, efforts towards eradicating various economic distortions need to be seriously raised.

Various regulations need improving. The Law on the Prohibition of Monopoly Practices and Unfair Business Competition will be gazetted. Various trade practices and special treatments will be abolished, and so will the various regulations which constrain inter-province and inter-island trades.

These practices and regulations are not only preventing the quick flow of goods and economic resources to allow the economic recovery, but are also becoming a source of the corruption, collusion and nepotism (KKN) practices. The success of these efforts is pivotal to the improvement of the quality and the competitiveness of national products in the domestic as well as in the international markets.

The recovery program and economic reforms can only be sustainably achieved if we are able to create a required precondition. The major step to be taken in the mid-term period is the institution's development and empowerment, especially the two pillars in achieving good governance, namely the proper handling of governmental affairs and the establishment of a sound legal and justice system.

The changes, which are demanded by the people, cover various dimensions and elements, especially those that relate to the attitude towards and responsibility in managing governmental affairs. In this era of reforms, transparency and accountability will be materialized and further improved. Transparency enables the decision-and-policy-making process to be constantly monitored and accounted for.

Public policies are required to be transparent and designed to solely benefit the people at large. Therefore, public policy, which has a tremendous impact upon the people, will be continuously and openly discussed before being adopted.

This open discussion will certainly improve the quality of the policy, eliminate the KKN practices, and guarantee the fulfillment of the people's aspirations although at its early stage it may bear severe consequences for them.

A much wider transparency is intended to encourage the attitude of the government personnel to side more with, and better serve, the people.

Apart from it, a more profound correction will be applied against the government personnel, the reason being that an effective system of government is very much contingent upon their performance. The ineffectiveness of the government personnel is primarily caused by three main reasons. First, the supervision system is weak. Second, the system of remuneration is inadequate. Third, the number of government personnel is excessive. These three factors can become a driving force for some to abuse their power and to commit corrupt acts.

A system of supervision and evaluation plays indeed a central role in improving the performance of the governmental institutions. Currently, the merit evaluation process of the government personnel is very weak, the level of subjectivity is overwhelming and, worse still, decisive action against those who abuse power and whose performance is poor is also far from adequate. If this happens at the leadership level, it will demoralize the officials at the lower level, which, in turn, will also compromise the quality of services rendered to the people.

The existing system of remuneration indirectly encourages the government personnel to disregard the prevailing regulations. This system only does disservice to the improvement of their performance and their career development. Furthermore, it does not only create the government's dependence on a paternalistic relation and personal loyalty, but also encourages the abuse of power in an attempt to enrich themselves. With a weak supervision system, there has always been a wide gap of welfare even among those government personnel with the same ranks.

A fundamental hurdle to the effort to increase the salary of the government personnel is the huge amount of funds involved. In the long run, one of the remedies is to reduce the excessive number of the government personnel. However, it is clear that it cannot be done in the short term, for it may create new and equally heavy political and economic problems.

In the short run, the measures that can be taken encompass four elements. First, to ameliorate the system of salary, which is designed to woo not only the productivity of the government personnel, but also the quality of services rendered to the people. Second, to improve the effectiveness of supervision, including that from the society, against acts of corruption and abuse of power. This effort should be coupled with upholding the law against any wrongdoing. Third, to prepare the transfer of civil servants from the central to regional governments, including the preparation of the entailing incentives. Fourth, to design a system of recruitment for new employees based on the real needs whose selection process is open and selective.

In the medium term, the measures that can be considered for adoption cover three elements. First, to encourage a gradual reduction of the government personnel with an adequate compensation for those who opt for an early retirement, or to provide vocational training for those who want to be channeled to private sectors. Second, to gradually reduce the government personnel whose main tasks and functions can be carried out by the community; the basic salary will continue to be given to them until they reach a retirement age. Third, to implement a new system of staffing to all government personnel based on their performance and the real need, including the need to consider the adoption of the working contract system.

As mentioned above, there are two main pillars in creating a good governance, namely to nurture and strengthen the handling of governmental affairs, including the reforms of the government personnel as previously alluded to, as well as to develop and strengthen the system of law and legislation.

The reforms in the fields of laws and legislation are indeed mandatory not only for the sake of the economic recovery, but also for the sustainability of the development program. Legal certainty will uphold justice and thus reduce risks in doing business, which is currently far from perfect. To redress the situation there are at least three measures to be taken simultaneously.

First, to improve and implement the existing laws and legislation. The enactment of the Law on Bankruptcy and the Law on Commercial Dispute Courts in order to take legal actions against those bankrupt companies are only-two of many examples. Apart from these, there have been efforts to develop a system of assets registration and a law on guaranteeing the collateral existence. These registration system and legislation will reduce the risks which the creditors may encounter, in cases where the same collateral is used to obtain different credits as has been done by some in the past, contributing to the swelling of the insolvent credits.

Second, to reform the system of judicature. An independent and professional system of judicature is indeed a high priority in this endeavor. Third, to reform the governmental administrative law in order to avoid overlappings between the regulations issued by one and another government institution.

The 2000 draft state budget has been realistically drawn up in order to present an accurate, clear, and transparent picture to the House, domestic as well as international business operators, and indeed to the whole of the people, on the direction, objective, and the strategy of the fiscal policy in an attempt to support the program of structure renewals leading to the recovery of the national economy.

In an effort to improve the transparency and public accountability, starting from the FY 2000 there will be a change in the structure and format of the state budget, approaching the standard Government Finance Statistics which is internationally used. Based on this new format, the state budget, which was previously drafted using a dynamic and balanced budget principle, is changed to become a deficit budget, financed by both domestic as well as international financial sources. The structural and format changes are intended to:

a. improve transparency, for in this new structure the size of the budget deficit, the domestic financial ability, and the dependence of the state budget on the international financial sources are clearly shown;

b. facilitate an analytical implementation of the on-going strategy of the fiscal policy, including its financing mode, and a comparative analysis between the development of Indonesia's fiscal operation and other countries. With this new format the state budget will also facilitate the monitoring, control as well as the implementation and supervision of the state budget;

c. anticipate the implementation of Law No. 25 1999 on the fiscal balance between the central and regional governments.

This new format of the state budget is intended to better facilitate the calculation of balance funds, not only for sharing the income generated from natural resources, but also for allocating the general funds.

Generally, the regrouping of income posts and state spending in the 2000 draft state budget is as follows:

a. At the income side, the tax component derived from oil and gas revenues is reallocated to its original function and nature, namely at the acceptance of the income tax in oil and gas sectors. Similarly, the acceptance which constitutes a component of the non-taxes state revenues, such as oil and gas mining royalties or the government's shares over the exploration and exploitation of oil and gas mines are reassigned to the post of the non-tax state revenues.

b. At the spending side, various kinds of spending which have so far created a confusing notion, such as the program to subsidize, the interest rate of which in the previous fiscal years was grouped in the post of development spending, in this 2000 state budget is reallocated to routine spending.

Similarly, the payment of bond interest rate for the national banking restructuring program, usually registered at the post of development spending, in this 2000 state budget is reallocated to routine spending. On the contrary, the payment of offshore loans installments which used to be booked at the routine spending post, in this 2000 state budget is reassigned to become a deducting component of the spending chapter.

c. Attempting to ensure transparency in drafting as well as facilitating the accountability of the implementation and calculation of the state budget, there has been a clear distinction made against various components of budget financing which in the previous fiscal years were assigned to the posts of state revenues and expenditures.

Several macroeconomic indicators, which have been used as assumptions in drafting the 2000 draft state budget, are inter alia the following:

a. 3.8 percent economic growth rate;

b. 4.8 percent inflation rate;

c. The price of Indonesia's crude oil is US$ 18 per barrel; and

d. The exchange rate of the rupiah is Rp 7,000 to US$1.

Generally, the structure of the 2000 draft state budget consists of the state revenues and grants, state expenditures, budget surplus/deficit, and the funding derived from the surplus/deficit. The state revenues are those originating and sustainably acquired from within.

Grants are those provided by other governments or international organizations, entailing no financial burdens (such as in the form of returning funds or the paying of interest rate). The state expenditure is the totality of all spending done by the government for financing routine and development activities.

Based on the total amount of the state revenues as well as the grants that might hopefully be obtained and in view of all the burdens of the state budget -- be it routine or development expenditures -- it is predicted that the 2000 draft state budget will suffer a budget deficit of Rp 45,373 billion or approximately five percent of the GDP.

This is due to a smaller amount of state revenues and grants obtained, which are predicted to be Rp 137,695 billion (15.1 percent of the GDP) compared to the state expenditures which are projected to be Rp 183,069 billion (20.1 percent of the GDP).

Compared to the budget deficit ratio of the 1999/2000 state budget that hit 6.8 percent of the GDP, the deficit ratio against the GDP of the 2000 state budget will therefore decrease to around 1.8 percent.

Of the state budget which is planned to be Rp 183,069 billion, the largest portion, namely Rp 143,682 billion (78.5 percent), will be allocated to routine expenditures in order to support the operational activities of the government both at the national and the regional levels, including the costs of maintaining the state properties, the payment of both offshore and domestic loan interests, and the subsidy for several commodities linked to primary needs of the people.

The rest, Rp 39,386 billion or 4.3 percent of the GDP, will be allocated to development expenditures for the financing of the routine development activities totaling Rp 23,356 billion or 2.6 percent of the GDP, and the financing of projects totaling Rp 16,030 billion or 1.7 percent of the GDP.

In the routine expenditures, there will be three kinds of expenditures absorbing a huge amount of finds, namely: (a) the payment of loan interests which are predicted to be around Rp 58,989 billion or 6.5 percent of the GDP, (b) the paying of the salaries of the central and regional civil servants which is predicted to be around Rp 45,709 billion, or 5.0 percent of the GDP, respectively comprising the remuneration of central government civil servants totaling Rp 29,355 billion or 3.2 percent of the GDP and the remuneration of regional government civil servants totaling Rp 16,354 billion or 1.8 percent of the GDP, and, (c) the subsidy which for the 2000 state budget is planned to be Rp 26,666 billion or 2.9 percent of the GDP both for oil and gas and for non-oil and non-gas. These burdens of subsidy will be gradually reduced.

In the development budget, the government will manage Rp 8,217 billion or 35.2 percent of the planned development budget in rupiah totaling Rp 23,356 billion, while the rest, which is Rp 15,139 billion or 64.8 percent, will be administered by regional governments. Meanwhile, project's funding whose sources come from project loans reaches Rp 16,030 billion or 1.7 percent of the GDP.

At the preliminary phase of the implementation of fiscal decentralization as stipulated in the Law on the fiscal balance between the central and regional governments, the portion of development budget allocation administered by regional governments will increase from 50.8 percent of the total budget in rupiah in the FY 1999/2000 to 64.8 percent at the draft state budget 2000, or an increase from 1.3 percent to 1.7 percent of the GDP.

The budget deficit in the 2000 draft state budget is expected to be offset with domestic sources of Rp 22,189 billion or 2.5 percent of the GDP. The amount will be hailed from non-banking sectors, namely from the divestment of the government's shares in the state-owned enterprises (privatization) worth Rp 5,939 billion or 0.7 percent of the GDP, and from the sale of banking assets that falls within the IBRA's program of Rp 16,250 billion or 1.8 percent of the GDP, while the remainder of Rp 23,184 billion or 2.5 percent of the GDP is expected to be balanced with foreign funding sources.

It is true indeed that we have to commit ourselves to work even harder in this difficult economic situation before hoping for a recovered condition to come round.

The attempt to store up state revenues faces formidable challenges. Approximately 71 percent of the state revenues comes from tax earnings. Of this amount, the income tax and value added tax hit 81 percent. The basis of these two taxes becomes relatively narrowed compared to the pre-crisis period. The income tax has lowered owing to the decreasing individuals' and companies' incomes. Meanwhile, economic activities that take place in the beginning of the recovery phase, parts of which have not yet been covered by the tax regime, also lead to a limited basis for value added tax.

The endeavor to accumulate taxes, therefore, starts from the improvement of the tax administration. To this end, the government classifies tax-payers into individuals and companies with a view to determining the more focused targets for tax collection, especially major tax-payers, and to carrying out better tax audit. Besides, regulations on foundations will be re- organized in order for the latter to achieve social objectives and not to dislodge the tax obligation.

The tax basis is also expanded. Different regulations on privileges, including tax exemptions, will be revised. This, however, does not mean that all tax incentives to attract investment are abolished. It is for this reason that tax allowances to replace tax holidays remain. This policy is in conformity with the agreement reached among ASEAN countries. One other endeavor is through the simplification of the process of reclaiming over tax payment.

Through the above mentioned procedures, the government expects tax earnings to reach 10.7 percent of the GDP, with the government's revenues to be expected to record Rp 137.7 trillion or 15.1 percent of the GDP. The high figure of revenues cannot be detached from the positive forecast of oil export price. The price, at the time of the drafting of the FY 1999/2000, was forecast at US$10.5 per barrel, but then it continuously increased to reach the peak of US$23.6 per barrel in November 1999, leading thereby to a historically sharp fluctuation of oil prices. Without disregarding the principle of prudence, therefore, the government sets the price of this commodity at US$ 18 per barrel, expectedly to generate tax and non-tax receipts from oil and gas sectors of Rp 37.5 trillion.

The other sources for domestic incomes are the revenues taken from government's services, state-owned enterprises' dividends, royalties, and other earnings such as repayments of government's credits. These income sources are classified into non tax earnings. In the draft state budget 2000, the incomes from privatization programs, which in the FY 1999/2000 constituted 50 percent of the government's non-tax income, are no longer included in this class of income.

The government's expenditures consist of routine expenditures and development expenditures, each of which is planned to reach Rp 143.7 trillion. There are some basic changes in the presentation of this year's draft budget, especially in the routine posts. The payment of the main debts will no longer be put in this post, but will become a part of funding that reduces the amount of loans received.

Along this line, if the value of the loan exceeds the payment of the main debt, the figure will show that foreign funding will in general still be needed, meaning also that foreign debts will increase. The system will at least reflect the net foreign funding that shows the declining foreign debt. According to its character, the payment of the bond interests for banking restructuring, as is the case of the payment of foreign debt interests, is placed in the routine expenditures.

The issuance of the bonds is inevitable for the process of economic recovery necessitates the once-and-for-all finalization of the banking restructuring. The important thing to do is to expedite the process to economize the fund and to bring back the banking system to the normal condition.

Measures for banking restructuring are comprehensively planned, detailed, and open to be monitored not only by the government but also by the society at large. The operational restructuring measures including management and capital reinforcement, have been applied to four government banks namely Bank Mandiri, BNI, BRI and BTN, as well as to 10 operationally frozen banks (BBO), 38 commercially frozen banks (BBKU) and 13 private banks taken over by the government (BTO), four of which have been re-capitalized.

The government has also amended related regulations to be followed by strict enforcement. Not only will the regulations cover the banking sector, it will also govern companies in general, especially those involved in private debt settlement.

The government needs a huge amount of funds for the issuance of debentures. The amount of the government's debentures at the beginning of the FY 2000 -- including those to be issued in March -- will reach Rp 625 trillion, carrying the interest for that year of Rp 42.4 trillion or 4.7 percent of the GDP. To lessen the burden, the government has, in an optimum extent, tried to retrieve the credits it has issued through the sale of its rights over the assets of the banks. With this measure, the sale of assets in the FY 2000 is expected to generate another funding source worth Rp 16.3 trillion.

In order for the disbursement of this tremendous fund to meet its target, numerous improvement efforts have been put in motion through, inter alia, the refinement of the IBRA organization, the finalization of the Bank Bali case, and the adoption of firm actions over uncooperative debtors. Of no less importance, the Supreme Audit Agency has executed an audit on Bank Indonesia.

The medium-term measures to reorganize the state institutions and to put an end to the KKN practices cannot also be separated from the effort to ameliorate the incentive system. In the FY 1999/2000 State Budget, the government expenditures for the incentive reached 39.80 percent of the total expenditures.

It is to be realized, however, that civil servants' income has yet to meet the appropriate level. In the period of crisis, with the inflation rates of 36.8 percent and '45.4 percent during 1997/1998 and 1998/1999, respectively, civil servants' income was raised by only 15 percent each fiscal year.

The figures clearly show the need for further betterment of civil servants' welfare, and this becomes more pressing for the level of incentive, since the pre-crisis period, is far under that given by private sector. In this context, there is a need to adjust the balance between the improvement of incentive for the state personnel and the effort to improve people's welfare in general.

Taking cognizance of the state's financial capability and the need for improving civil servants' welfare to create a clean state personnel and to increase its work on one hand, and the need for providing incentives that are not counter-productive to the efforts to make the bureaucracy more efficient on the other hand, the government stocks a budget for central and regional civil servants totaling Rp 45.7 trillion. Despite the increase of budget for state personnel' welfare, it is to be noted that its allotment in the routine expenditures has lessened compared to that in the previous year.

To lessen the people's burden, subsidies continue to be provided covering oil, food, electricity, program's credit interest and others. The main strength of the policy is target determination in order for the subsidies to reach those who really need them. The funds being economized from this post can then be used to strengthen development funds for, which are aimed mainly at propelling the decentralization process and the poverty alleviation program. This will in turn enable the limited funds to produce optimum results.

However, it should be realized that there is inefficiency in the provision of energy that leads to the over-supplying of the subsidy budget. To overcome this inefficiency, the government will conduct a series of restructuring in the state-owned oil company Pertamina and will compress the operational budget of the state-owned electricity company, PLN.

Following up the results of the audit on Pertamina, it is expected that by March this year the company will have completed its restructuring program to economize its overhead budget, including measures to fix inefficient posts found by the auditing, and at the same time preparing Pertamina to be more competitive in the international market. These measures will be accompanied by the refinement of regulations. As regards PLN, the government will renegotiate the unjust contracts in a transparent manner.

Despite the measures taken, budget for oil and electricity subsidies will continue to hike. The worthy price of oil in the international market helps increase the oil subsidies, for the government will still need to import crude oil to be refined in domestic oil refineries and also due to the insufficient domestic production.

For that purpose, the government regretfully has to raise the prices of oil products. Yet, the rise will not be across the board for all the products, and will take consumers' income into full consideration.

Besides, a specific subsidy scheme will be made available to the poor and the needy. Protection measures for the poor will also be undertaken in the supply of electricity through the decision not to raise the tariff of consumers subscribing for 450 Watts. With these measures, the amount of oil and electricity subsidies will still be high, reaching Rp 18.3 billion and Rp 3.9 trillion, respectively.

The government also will provide a food subsidy of Rp 2.2 trillion, to be especially disbursed for supporting low-price rice in food special operation (OKP) programs. As for the program's credit interest, the government furnishes Rp 1.9 trillion aimed mainly for farmers' business credits (KUT).

The government has, through the development budget, also allocated some funds for the social safety net (JPS) and poverty alleviation totaling Rp 2.8 trillion.

The fund is a part of the budget whose management will be entrusted to the local governments, or the decentralization budget. By and large, the decentralization budget is planned to cover 64.8 percent of the pure budget in rupiah of Rp 23.5 trillion. Compared to the FY 1999/ 2000 -- for nine months to equate the duration of the 2000 draft budget -- the total amount increases by Rp 3 trillion, while the budget administered by the central government decreases by Rp 3.5 trillion. This is a primary step of the decentralization process, the mechanism of which will be developed in the future.

Of the decentralization funds, most of its quantity is the funds for regency and municipality development, which is Rp 5.9 trillion. This is in line with the decentralization spirit to transform the second level regions into the spearhead of development. These regions are expected to better absorb people's aspirations regarding fund allocation.

In this context, the provincial budget allocation is projected at Rp. 3.1 trillion and the rural budget allocation at Rp 670.3 billion. Besides regional development funds that comprise rural, district and provincial funds and social safety net and poverty alleviation funds, there are funds within this decentralization budget, namely land and building taxes (PBB) and property taxes (BPHATB) totaling Rp 2.6 trillion.

The revenues, after being deducted for collecting compensation of 10 percent, are all administered by the first and second level regional governments (provinces and regions).

A total of Rp 8.2 trillion for development expenditures will be administered by the central government to be used to fund projects in different sectors, including counterpart funds needed to support foreign-funded development projects.

The project loans in 2000 are limited to those which are urgently needed and which show significant progress as expected. The restriction has canceled 43 projects worth US$ 556 million or, at an exchange rate of Rp 7000 to US$1, Rp 3.9 trillion. Similar restrictions are applied to prospective projects for 2000, set only at Rp 16 trillion, much lower than the amount allocated for the approved projects in the FY 1999/2000 -- within nine months -- totaling Rp 22.5 trillion.

Gradually, should all structural readjustment programs be carried out properly, economic growth is expected to arrive at 6 or 7 percent within the next five years. Moreover, this economic growth will be supported by stronger fundamentals for it is supported not only by business groups but also by the society at large. Economic recovery is also believed to cover wider areas. Of similar importance, the stable rupiah at Rp 7000/US$1 will enable the inflation rate to float at 3 percent to 5 percent.

The healthier economy will also strengthen the future state budget. The higher the growth rate, the better the basis of government's revenues. Better taxation administration, reduction of tax exemptions and the dissolution of the off-budgets will lead to the strengthening of government revenues and support the momentum for overall economic recovery. The budget deficit is expected to decline from 5 percent of the GDP in 2000 to become balanced in 2004.

The implementation of the state budget is expected to transparently reflect the aspirations in the State Guidelines. This very message sends a clear signal for us to render more focus on the process instead of the achievement of targets.

The dialogue between the government and the House is facing the problem of limited time. Besides the principles of transparency and democracy in the deliberation of the draft, it is of paramount importance for us to keep the schedule on its track to start the 2000 state budget on April 1.

The timely implementation of this state budget is urgent to prevent a negative market perception. Against this backdrop, phases set in the economic agenda can proceed accordingly. God willing, the economic recovery and the development goals can be reached.