'Budget realistic, but lacks stimulus'

The Jakarta Post, Jakarta

The 2004 draft budget unveiled on Thursday offers little room for stimulating economic activities and, therefore, experts concur that it will not help much in achieving the government's target of 5 percent growth next year.

Aside from the growth target, they see the other assumptions in the 2004 draft budget as realistic given the current global and domestic economic circumstances.

Economists Raden Pardede from Danareksa Research Institute and Fauzi Ichsan from Standard Chartered Bank agreed that the budget, due to its belt-tightening measures, would do little to stimulate more robust economic activities so as to generate higher growth.

As the budget would not drive growth, they said the private sector was the only hope for boosting economic activities and creating employment.

"Don't expect much from the budget by way of stimulating the economy as the options and the money are limited," Raden said.

Fauzi concurred, saying: "Under the current circumstances, the stimulus can only come from the private sector."

Achieving higher economic growth is crucial to helping resolve the country's unemployment problem, with open unemployment standing at around 40 million.

The 2004 draft budget foresees total spending of Rp 368.79 trillion (US$44.43 billion), lower than this year's figure of Rp 370.59 trillion.

This lower spending is mainly due to a drop in debt interest payments to Rp 68.5 trillion from Rp 81.97 trillion. The allocations for other spending items, however, have increased.

The government is apparently trying to suppress spending, especially on debt servicing, in a bid to reduce the country's perennial budget deficit. It is aiming for a zero budget deficit starting 2005.

Next year's budget deficit is expected to fall to 1.2 percent of gross domestic product, or Rp 24.9 trillion, from 1.8 percent this year, or Rp 34.44 trillion.

Besides the growth target of 5 percent, the government has presented moderate assumptions for other economic indicators for next year, such as an inflation rate of 7 percent, rupiah exchange rate of Rp 8,700 against the greenback, oil price of US$21 per barrel and daily crude oil output of 1,150 million barrels.

When delivering the budget speech before the House of Representatives, President Megawati Soekarnoputri said the conservative assumptions were due to the tough challenges Indonesia had to face next year, which included: "holding the general elections and bringing to a close the financial arrangement with the IMF (International Monetary Fund)."

Fauzi noted that apart from the growth target, Indonesia had good chances of outperforming the other assumptions.

"Most of the assumptions are conservative. Take the rupiah for example, it could well be hovering at below the 8,000 level next year, assuming that the election goes off smoothly, which I think it will.

Fauzi noted that the government had achieved better results this year than originally targeted. Low inflation and a stronger rupiah were examples of this.

Also, the government had raked in more income from oil and gas exports due to higher international oil prices than were targeted in the budget.

Raden and Fauzi believed that the conservative figures in the draft budget could instill confidence among market players and investors that Indonesia, even without the IMF program, could deliver prudent fiscal policies.

David Nellor, head of the IMF representative office in the country, also welcomed the conservative targets for the macroeconomic parameters set out in the draft budget.

"We welcome the more optimistic outlook on inflation and that the government is targeting growth in the 4 percent to 5 percent range.

"The prospects of achieving the upper end of the range rest, among other things, on the government's resolve to safeguard the progress made to date and to strengthen reform in areas related to the investment climate," Nellor said.

State Budget 2003 and 2004 ----------------------------------------------------- Basic assumptions 2003 2004

(proposed) ----------------------------------------------------- GDP (trillion Rp) 1,940.0 2,003.3 Growth (%) 4.0 5.0 Inflation (%) 9.0 7.0 Exchange Rate (Rp/US$) 9,000 8,700 BI's 3-month Rate (%) 13.0 9.0 Oil Price (US$/barrel) 22.0 21.0 Oil Output (barrels/day) 1.27m 1.15m

----------------------------------------------------- Source: Ministry of Finance