Budget realistic, except rupiah assumption: Experts

JAKARTA (JP): Experts said that the government's 2001 budget proposal was generally quite realistic although legislators expressed skepticism on the exchange rate assumption.

"I think the figures (in the proposed budget) are quite realistic," said senior economist at PT Danareksa Securities Raden Pardede.

He cited the economic growth assumption of 4.5 percent, inflation at 7 percent, international oil price at US$22 per barrel and an exchange rate of Rp 7,300 per U.S. dollar next year as reasonable.

"There is actually nothing new because the figures are mostly as expected except on the non-oil and gas tax revenue target," Raden said.

The government envisaged total revenues of Rp 243 trillion, of which almost 70 percent would come from domestic taxes, particularly income tax and value-added tax.

Out of the income tax target of more than Rp 93 trillion, more than Rp 75 trillion would come from the non-oil and gas sector.

"The government will have to work very very hard to meet this target," Raden said.

Meanwhile, several legislators said that the exchange rate assumption of Rp 7,300 per dollar in the budget draft was "too optimistic."

"I think the exchange rate assumption is too optimistic given the current domestic political condition," House Speaker Akbar Tandjung said.

Akbar said if the domestic political condition remained uncertain, foreign investors would not enter the country and the rupiah would remain weak.

Separatist movements, communal and religious clashes, and conflicts between political elites have plagued the country since 1998.

The rupiah is currently hovering at around Rp 8,785 per dollar.

Former chief economic minister Kwik Kian Gie, who is now a member of the House, also expressed doubt over the government's exchange rate assumption.

Kwik said it would be difficult to achieve the Rp 7,300 per dollar target because of the inflationary threat.

"If inflation is uncontrollable how can the government (stabilize) the rupiah," he said.

He pointed out that there had already been inflationary pressure even prior to the Oct. 1 fuel price increase.

The government increased fuel prices between 9 percent and 25 percent which many analysts said could trigger inflation. Analysts said that inflation this year could rise to more than 9 percent, higher than the government's target of between 5 percent and 7 percent.

The government is also planning to increase fuel prices by another 20 percent in April in a bid to help reduce the burden on the state budget.

But Coordinating Minister for the Economy Rizal Ramli said that the government had yet to decide whether it would raise the fuel prices again.

"It is still an open option," he said.

Kwik observed that the other macroeconomic assumptions in the budget draft were realistic.

He said that the first half economic performance this year should provide the "momentum" for further economic growth and macroeconomic stability in the second half and next year.

But Kwik warned that the government must work to maintain the "momentum."

"But if the (domestic) security problems are not resolved immediately, don't expect the momentum to be maintained," he said.

"The government must realize that security, social and political conditions are closely linked to economic stability," he added.

He cautioned that the government should not rely solely on the Police to maintain security because of their limited capacity, but should also reinstall the cooperation of the Army.

President Abdurrahman Wahid acknowledged in his written budget speech, delivered by Vice President Megawati Soekarnoputri, the pressing security problems at home and said that the government would strengthen the role of the Police as the "protector of the people and preventer of all (disorder) and security disturbances."

In a related development, the International Monetary Fund called the draft budget a "sensible" spending plan which was trying to cope with the sensitive issues of subsidies and fiscal decentralization.

"It does move toward cutting subsidies and deals with decentralization in a balanced way," IMF senior resident representative in Jakarta John Dodsworth told Reuters.

"The difficulty will come in the implementation of decentralization, to make sure what's written in the budget is implemented in practice," Dodsworth added.

The budget draft allocates more than Rp 74 trillion or around a quarter of the total spending to provincial and district administrations to help them carry out their new political and economic roles.

The autonomy and fiscal decentralization policy is seen as a crucial measure to help prevent the country from tearing apart.(rei)