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.