Budget needs at least Rp 10t extra loans: Economists

Budget needs at least Rp 10t extra loans: Economists

The Jakarta Post, Jakarta

Facing a plunge in state revenue after the Oct. 12 terrorist
strike in Bali, the 2003 state budget needs additional loans of
at least Rp 10 trillion (about US$1 billion) to plug a wider than
expected budget deficit, economists said on Wednesday.

They said plans to stimulate the economy at a time when state
revenue was falling, meant the 2003 budget deficit could hit 2
percent of the gross domestic product (GDP) from 1.3 percent to
GDP as outlined under the initial draft budget.

"Asking for less than Rp 10 trillion (in loans) would not be
enough to contain the gaping deficit," said Pande Raja Silalahi,
an economist at independent think tank Centre for Strategic and
International Studies (CSIS).

The government is revising the assumptions in its 2003 draft
budget to better reflect the economic impact of the Oct. 12
terrorist strike in Bali.

Gloom in the tourist sector and lower business and consumer
confidence are hurting state revenues, which according to the tax
office, could amount to some Rp 10.8 trillion in potential tax
losses.

Considering this prospect, the government is planning to
stimulate the economy through higher development spending even
though it means widening next year's deficit.

At 1.3 percent to GDP, which measures the total value of
products and services a country produces a year, the budget's
shortfall would amount to some Rp 26 trillion.

That deficit target has become unlikely, finance minister
Boediono said on Monday. And some media reports have quoted
sources as saying the new target was set at 1.5 percent of GDP,
for which the government was eying US$420 million in extra loans.

Pande agreed the government should allow the deficit to swell
if this would enable the economy to grow amid the extended dry
spell in private investment spending after the Bali bombing.

Indonesia's economy must grow by at least 5 percent to 6
percent to effectively cut the massive unemployment and poverty
rates.

Last year it grew by around 3.3 percent, and economists have
said that growth would reach less than 4 percent this year.

For 2003, the government had hoped for 5 percent growth, but
may now be looking at a lower target as it revised downwards
assumptions affecting the budget's revenue side.

Indonesia plugs its budget deficit with foreign loans, and
proceeds from selling state companies and state assets under the
Indonesian Bank Restructuring Agency (IBRA). Rescheduling foreign
debt payments is also a means to cover the deficit.

Loans from international creditors could partly offset weaker
revenues, while allowing the government to stimulate the economy,
said Raden Pardede of state owned Danareksa Research Institute.

"With a deficit of 2 percent (to GDP), we'll need around Rp 20
trillion in additional funding sources," he said.

The government will meet Indonesia's main creditor countries
under the Consultative Group on Indonesia (CGI) on Friday to
discuss the extra loans.

Raden said the government should also "maximize" privatization
and IBRA asset sales' efforts. However few believe that sales
could fair better than they did in this and in previous years.

The government will present today its revised assumptions to
legislators as the first step to draw up a new state budget for
next year.

Senior government officials and legislators have started
preliminary talks on the revised draft during closed meetings
over the last two days.

Priyo Budi Santoso of the Golkar faction said legislators were
disappointed by a low budget realization even prior to the Bali
bombing, and might therefore not easily agree to the new targets
in the 2003 draft budget.