Budget at risk as BCA, Gresik sales in doubt

Berni K. Moestafa, The Jakarta Post, Jakarta

Fresh doubts over the planned sale of PT Bank Central Asia (BCA) and cement firm PT Semen Gresik will jeopardize deficit financing for this year's state budget, as the government finds itself short of options to secure alternate funding, say experts.

Economist Raden Pardede at the Danareksa Research Institute said a decision to waive on a US$520 million sale of Semen Gresik had put the survival of the budget at risk.

That has compounded concerns about the planned sale of BCA, as foreign investors' interest was slack, he added.

"This is a serious threat to the budget, the government must act on it quickly," he told The Jakarta Post over the weekend.

The government hopes to contain this year's budget deficit at Rp 54.31 trillion or 3.7 percent of gross domestic production (GDP).

To help fill the deficit, the government has targeted privatization proceeds of Rp 6.5 trillion (about $633 million), plus Rp 27 trillion in asset sales under the Indonesian Bank Restructuring Agency (IBRA).

The other source of financing for the deficit is foreign loans.

There have been no proceeds from privatization so far, while as of September, IBRA was Rp 8 trillion behind target.

Gadjah Mada University economist Sri Adiningsih also expressed concern over the slow progress of the privatization program, but said that the government could use last year's excess budget of around Rp 10 trillion to help finance this year's deficit if proceeds from asset sales were not enough.

"This can be used as a last option," she said, dismissing fears that the government might have to stop paying the salaries of civil servants due the lack of revenue.

Sri said that the relatively high price of oil during the first half of this year, which was higher than the budget assumption of $24 per barrel, should bode well for the budget.

The oil price fell below the budget assumption following the Sept. 11 terrorist attacks on New York and Washington.

Sri said, however, that budget spending this year could be higher than estimated particularly due to high domestic interest rates which inflated spending to cover the interest of government bank recapitalization bonds.

The budget assumes Bank Indonesia's three-month promissory notes (SBI) rate at an average of 15 percent, but the rate has been hovering at around 17 percent during the past couple of months.

Part of the government bonds carry a floating interest rate linked to the SBI rate.

The government skipped an Oct. 26 deadline for selling Semen Gresik to Mexican firm Cemex SA de CV, due to protests from regions where Semen Gresik owns operations.

A new deadline was set for December. But there is no guarantee that by then the team assigned to evaluate Semen Gresik's sale will decide in favor of divestment.

Opposition to the sale remains high, receiving support from some legislators airing antiforeign sentiments.

Banking analyst Mirza Adityaswara said IBRA's planned sale of BCA is increasingly looking like what could be double jeopardy.

"On one hand, we don't want to sell the bank to a dubious investor, on the other hand, if no one passes the fit and proper test, it won't look good for the state budget either," he said.

IBRA announced last week a list of 18 bidders for BCA. Local bidders dominate the list with 11 names, signaling that foreign interest in the once largest private bank is slack.

Mirza estimated the foreign bidders joining the bid may not go all out to obtain the 51 percent stake in BCA on offer.

He said some of the local bidders may be lacking either in adequate funding or credibility to pass Bank Indonesia's fit and proper test.

Mirza said that options were limited for the government to replace BCA's proceeds, if no one passed the tender.

Danareksa's Raden agreed, saying the government could not afford to forego either of the two asset sales, let alone both.

The state budget, which is already running tight, offered little room for further cuts, he said.

"Trimming the regional allocation funds isn't a good idea, as it would harm regions' budgets," he said.

Former finance minister Bambang Sudibyo said the government may still rake in higher revenue from taxes, excise and sales of oil and gas.

These, however, would have to surpass a surge in spending to make up for the shortfall in asset sales.

"The question remains, how is the government going to cover the budget deficit?" Bambang told the Post.