Belt-tightening measures, subsidy cuts seal new budget
The Jakarta Post, Jakarta
President Megawati Soekarnoputri unveiled on Friday the 2004 state budget draft, which would cut the amount of costly subsidies on fuel and electricity and limit development spending as part of belt-tightening measures to bring government finances back in order.
Total expenditures are projected at Rp 368.79 trillion (US$44.43 billion), slightly lower than the current budget of Rp 370.59 trillion. Revenue is set to increase by 2.3 percent to Rp 343.88 trillion.
Under the draft, next year's budget deficit would shrink to 1.2 percent of gross domestic product (GDP) from the 1.8 percent estimated for this year.
Over the past two years, the government has been forced to implement belt-tightening measures, at the request of the International Monetary Fund, to establish fiscal stability following the late 1990s financial crisis. The budget deficit was about 3.7 percent of GDP three years ago.
This is important to show investors the government can prudently manage its finances, particularly as it seeks loans from foreign creditors and tries to raise funds on the international bond market to help finance the 2004 budget. It will be doing all this at a time when the IMF will no longer take an active role in designing the country's economic policies.
"The ending of the IMF program represents a test and a challenge for us to show our credibility in implementing economic programs," Megawati told lawmakers when delivering her budget speech.
Under the proposed budget, which will be debated by lawmakers next month, the amount of subsidies will be reduced to Rp 23.31 trillion from Rp 25.46 trillion.
Subsidies on fuel products will be cut to Rp 12.69 trillion from Rp 13.2 trillion, while the electricity subsidy will be reduced to Rp 3.44 trillion from Rp 4.52 trillion. Other subsidies such as those for fertilizer and credits for farmers would also be affected.
Development spending will be limited to Rp 68.10 trillion, compared to Rp 65.13 trillion under the current budget. Some sectors like agriculture, cooperatives, tourism and regional development could suffer from the lower spending next year.
Of the total expenditures next year, Rp 68.5 trillion will go to paying interest on government bonds issued in the wake of the financial crisis. Despite the huge amount, this is 16 percent less than the amount allocated for this year.
The government will have to work hard to raise funds at home and overseas to finance the fiscal gap next year. A large part of this will come from domestic bond sales of about Rp 28 trillion, and loans from the Consultative Group on Indonesia of about Rp 26.5 trillion. The government also plans to raise about $400 million through an international bond issue.
Under the draft budget, the government hopes to raise Rp 10 trillion from the privatization of state-owned companies and the sale of remaining assets under the Indonesian Bank Restructuring Agency.
The government also hopes to increase tax revenue by 6.6 percent to Rp 271 trillion. This will largely come from income tax and value added tax.