Budget deficit to be limited to 3.8% of GDP

JAKARTA (JP): Finance minister Prijadi Praptosuhardjo said on Monday that the government would try to limit the 2001 state budget deficit to 3.8 percent of gross domestic product (GDP).

Prijadi said that a joint team comprising officials from the Ministry of Finance, the Office of the Coordinating Ministry for the Economy and the National Development Planning Agency (Bappenas) had completed the revision of the current state budget, but it would first be discussed at a Cabinet meeting this week before being proposed to the House of Representatives.

"We'll try to limit the deficit to the initial projection of 3.7 percent of GDP. The figure may still change, but we'll try to limit it to 3.8 percent of GDP because this is (the) sustainable (level)," he was quoted by Antara as saying following a meeting with senior officials of the finance ministry.

"One of the points to be discussed (at the Cabinet meeting) is the plan to reduce the fuel subsidy. I expect it will be approved (by the Cabinet)," he added.

The government has said that the current budget deficit could widen to a dangerous level of up to 6 percent of GDP, compared to the initial projection of 3.7 percent, unless measures were immediately taken.

The widening deficit is primarily due to the weakening of the rupiah against the U.S. dollar and rising domestic interest rates.

The government is planning several measures, basically focusing on raising domestic revenue and cutting down spending, in order to maintain the deficit at a tolerable level.

Some government officials had earlier said that tax and excise revenue would be increased by around Rp 3 trillion, privatization proceeds raised by Rp 2.2 trillion, the fuel subsidy reduced by Rp 5.6 trillion and wealthier provinces and districts asked to contribute around Rp 5.2 trillion by purchasing government bonds, government stakes in state enterprises and assets under the Indonesian Bank Restructuring Agency (IBRA).

One of the most difficult issues is the plan to the reduce fuel subsidy, which would mean raising fuel prices, a measure that could trigger widespread social unrest.

Coordinating Minister for the Economy Rizal Ramli said earlier that the budget revision included the changing of budget assumptions. The rupiah exchange rate would be revised to Rp 9,600 per U.S. dollar, compared to initial assumption of Rp 7,200 per dollar; inflation rate revised to 9.3 percent from 7.2 percent; economic growth revised to 3.5 percent from 5 percent; and the interest rate of Bank Indonesia SBI promissory notes increased to 15 percent from 11.5 percent.

Prijadi said that after obtaining the approval of the Cabinet, the government would submit the revised budget to the House to be debated.

Prijadi had earlier said that the government expected to obtain final approval from the House by the end of this month.

Although several senior legislators have said they would fully cooperate with the government to speed up the deliberation process, some analysts fear that there could be delays due to the current political row between President Abdurrahman Wahid and the House.

The immediate approval of the proposed budget revision by the House is important to persuade the International Monetary Fund to disburse its next US$400 million tranche to the country.

The disbursement of the IMF tranche is seen as a crucial factor to help revive investor confidence in the ailing economy.

The IMF delayed the disbursement of the tranche late last year due to signs of the government wavering in the implementation of the agreed upon economic reform agenda. (rei)