Budgetary discipline

Budgetary discipline

Minister of Finance Mar'ie Muhammad, one of the most respected
technocrats in the cabinet, does not seem to care about politics.
But the blunt reality is that fiscal policy is very much bound up
in politics. Last week he told the House of Representatives the
government would continue to pursue a contractive fiscal policy
as a safety measure against inflationary pressures and the threat
of a bigger current account deficit. This is quite a departure
from the policy of many governments which loosen fiscal policy in
election years. Indonesia will hold its general election in May
1997, and its presidential election in March 1998.

Although the law requires the annual state budget to balance
at the end of each fiscal year, Mar'ie said the government would
always endeavor to produce a sizable budget surplus by becoming
more efficient. But the surplus will not be used domestically. It
will go on early foreign debt payments, as it has done over the
past three years.

Fiscal and monetary policies are the two main instruments a
government uses to control the economy. Both policies are usually
directly or indirectly linked. The main difference between them
lies in the impact. Fiscal policy has a longer time lag than
monetary policy.

Mar'ie said he did not want to slight the role of monetary
policy but argued that a tight budgetary policy could serve as a
safety net to cope with the current account deficit, which he
believes has reached an alarming level. It has reached as much as
4 percent of Gross Domestic Product.

Mar'ie's policy stance does not differ much from the central
bank's monetary policy. Bank Indonesia Governor Soedradjad
Djiwandono earlier indicated that monetary policy must remain
tight even though the overheating of the economy had eased.

However, with all due respect to Mar'ie and his perseverance
in acting on what he preaches, we should concede that many
elements of a tight fiscal policy remain beyond the finance
minister's control. Take the state budget which is one of the
main components of fiscal policy. Mar'ie conceded at a meeting
with the House of Representatives last week the government had
yet to improve its budgetary discipline.

The vigorous discourses between Mar'ie and the House Budgetary
Commission show how Mar'ie often has to deviate from his policy
stance to meet the various ministries' competing interests. We
think Mar'ie fully shares the House members' view that all state
revenues should be accounted for in the state budget. But the
hearing revealed how Rp 50 billion of the estimated Rp 288
billion the government received from coal mining royalties had
been transferred to the Minister of Mines and Energy's account
and not to the state treasury, the repository for state budget
funds.

True, as the finance minister says, the use of state funds
outside the state budget is always subject to audit. But the
problem, as far as fiscal policy is concerned, is the huge amount
of the public sector spending outside the state budget. The coal
mining royalties are the tip of the iceberg. Previously, House
members questioned the use of millions of dollars derived from
forest royalties. A portion of the huge forest royalties is being
used by state aerospace company PT IPTN, Bandung.

We are afraid there are still many other levies and service
fees or user taxes which are being collected by various
government agencies but remain outside the state budget and
beyond the House of Representatives' control. Every government
office seems eager to have its own cash cow. Mar'ie obviously
needs the cooperation of all government agencies to improve
budgetary discipline and make fiscal policy really effective in
achieving its objectives.