Budget fails to win over economists

Budget fails to win over economists

JAKARTA (JP): Economists expressed concern over the country's
April-December 2000 state budget, which was approved by the House
of Representatives on Thursday, especially in view of the large
spending on fuel subsidy and an over-optimistic revenue target.

The revised version of the state budget increases total
spending to Rp 197.03 trillion (US$26.6 billion) from Rp 183.07
trillion proposed in the January-version budget draft, with the
biggest rise going to fuel subsidy.

Total state revenue was revised upward by about Rp 15 trillion
to Rp 152.90 trillion on expectations of higher world oil prices,
asset sales revenue and tax and royalty receipts.

An economist at securities firm PT Danareksa Securities, Raden
Pardede, said that fuel subsidy got the bulk of the additional
revenue, leaving little for development (investment) spending,
which was sorely needed to pump prime economic activities.

"I think this is misdirected," he said.

He said such a structure of budget allocation would not help
create more employment which is badly needed in the current
economic climate.

After more than a month of debate with the House budget
committee, the government finally surrendered to House pressure
to raise the oil price assumption from $18 per barrel to $20 to
help meet total spending of Rp 22.46 trillion for fuel subsidy,
and to allow for a fuel price increase of only 12 percent,
compared to an earlier government proposal of 20 percent.

Under the earlier budget proposal, the amount of fuel subsidy
was set at Rp 18.30 trillion.

Deciding the size of fuel subsidy and the increase in fuel
prices was the most contentious issue in the budget debate
between the House and the government.

Unlike the previous rubber-stamp legislature, the House now
seems in a better position to critically assess the state budget
as the country embraces a more democratic environment.

Some legislators fear that a high increase in fuel prices
might ignite social unrest.

Under the subsidy policy, the price of fuel for public
transportation and state electricity firm PLN, as well as the
price of kerosene for the poor, will not increase.

"But too many subsidies will only spoil the people, create
inefficiency and open loopholes for abuse," Raden said.

"People will have more pride if they're given jobs rather than
subsidies."

University of Gadjahmada economist A. Tony Prasetiantono
expressed concern over the revenue target, particularly the oil
price assumption.

"The assumptions in the state budget are too optimistic," Tony
said.

"The $20 per barrel oil price assumption is too risky."

He pointed out that the U.S. would continue to apply pressure
to lower the world oil price because the country was determined
to reduce its inflation level.

"The higher subsidy level is also inconsistent with our
determination to gradually phase out subsidies," he added.

Tony also expressed doubt that revenue targets from the sale
of assets held by the Indonesian Bank Restructuring Agency (IBRA)
and the privatization of state companies could be met because
IBRA and the Ministry of Investment and State Enterprises would
compete in the same market.

"They're in the same business of selling assets and target the
same market. I'm afraid that the value will not be maximum," Tony
said.

The revised version of the state budget tasks IBRA to raise Rp
18.9 trillion, up from the earlier proposal of Rp 16.25 trillion,
while the proceeds from privatization was increased to Rp 6.5
trillion from Rp 5.9 trillion.

However, finance minister Bambang Subianto said he was
optimistic IBRA would meet its revenue target, but he
nevertheless cautioned the country to be prepared for a
contingency program if the assumptions in the state budget could
not be met.

"We have to be prepared to anticipate the possibility of not
meeting the revenue target, particularly if the $20 oil price is
not realized," he told the House.

"The worst possibility is that we must be ready with
adjustment measures on the spending side, including a reduction
or delay in low-priority spending."

Bambang had earlier succumbed to pressure from legislators to
lower the state budget allocation to cover the interest cost of
the government's bank recapitalization bonds from Rp 42 trillion
to Rp 38 trillion.

House members demanded the government lower the interest cost
to allow for a 30 percent rise in the salaries of civil servants,
police and the military, compared to a previously proposed rise
of 20 percent.

"Most importantly, this budget accommodates the aspirations of
the people, not the market.

"If we accommodate the aspirations of the people, then the
market will have to follow," Bambang said. (rei)