Bill limits flexibility in making fiscal policy

Dadan Wijaksana, The Jakarta Post, Jakarta

Economists say that a clause in the newly approved state finance bill requiring the government to obtain approval from the House of Representatives before seeking foreign loans allows for too much interference from legislators.

Raden Pardede, director of Danareksa Research Institute, told The Jakarta Post on Sunday that such a ruling would keep the government's flexibility at a minimum in determining its fiscal policies.

"It will certainly limit the government's flexibility, which is not good. I personally think that the clause is unnecessary because seeking House approval has proved time-consuming.

"The idea that all foreign loans should be accountable, yes I agree with that. But, not like this," Raden said.

He was commenting on Article No. 23 of the state finance bill, which stipulates that the government can obtain loans or grants from foreign countries or institutions with the approval of the House. The bill in question was approved last week at a plenary session and now awaits President Megawati Soekarnoputri's signature for enactment.

The inclusion of the clause was apparently based on the necessity to limit the country's foreign debts at a safe level, thus making it easier to control them.

"I know that the clause was meant to make the nation's foreign debts more controllable. What needs to be stated in the law is a general guideline, not a specific one like this. This will further slow down the government's actions," Raden went on.

As of December last year, the country's total outstanding foreign debt stood at about US$73 billion.

The bill refers to all foreign-based loans, including loans that are not intended for budgetary purposes. Previously, approval from legislators was not a must.

Most of the foreign loans are intended to finance the state budget deficit. The loans come from the Consultative Group on Indonesia, a grouping of the country's traditional donors.

But the money coming from the International Monetary Fund (IMF) is not for budgetary purposes.

Under the IMF-government agreement, loans from the IMF cannot be used for purposes other than to strengthen the country's foreign reserves, something that is beneficial to help strengthen the rupiah.

Raden further viewed the inclusion of the clause as counterproductive, as it placed the House in a more powerful position, making it the center of every decision.

Sharing Raden's view, Citibank economist Anton Gunawan said that the move only confirmed suggestions that the House wanted to take over part of the executive's work.

"It will only further slow down the government's moves. It's been proven that even without such a ruling, the progress of various programs from the government has been stalled partly due to the House's unnecessary interference," Anton said, citing asset divestment and the privatization program as examples.

Not only will seeking House approval take a long time, but, worse, it would also be subject to political wrangling between legislators, who appear to better serve the interests of their respective political parties rather than the interests of the public.

Anton was cynical when he said: "If anything should pass the House first, why don't legislators sign the LoI?"

He was referring to the letter of intent between the government and the IMF that contains the country's key economic reform program and several time-bound targets that the government has to meet quarterly.