Fri, 03 Mar 2000

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)