Businesspeople hail massive spending cuts

Businesspeople hail massive spending cuts

JAKARTA (JP): Businesspeople and analysts welcomed the massive
spending cuts announced by Minister of Finance Mar'ie Muhammad
yesterday but said they are not enough to strengthen the
fundamentals and competitiveness of the national economy.

"I see the spending retrenchment as a very positive signal to
the market and very conducive to maintaining stability of the
rupiah at its new equilibrium rate," said chairman of the Gemala
Group, Sofjan Wanandi.

Sofjan said businesspeople need more technical and specific
details of the spending cuts to help make the necessary
adjustments.

"In a situation like this, the business community, including
those overseas, require firm certainty which is possible only
when the government provides a clear-cut direction through well-
defined policy guidelines," Sofjan added.

He said many of the measures announced by the government
through Mar'ie's report at the House of Representatives' plenary
session were still too general.

"We, for example, want to know more details on which projects
will be rescheduled or reviewed. We also want to be apprised of
the schedule for the gradual easing of the tight monetary
measure," added Sofjan, also spokesman for the Prasetya Mulya
forum of conglomerates.

The government, he said, needs to elaborate on additional
incentives to be granted to exports and on consumer goods to be
subjected to higher luxury sales taxes.

Sofjan also questioned why the government did not specify the
measures to be taken to remove market distortions such as
monopolistic practices which are hindering exports and affecting
overall economic efficiency.

"All these additional measures are essential to restore
business certainty which has been devastated by the rupiah
turmoil and the credit pinch," he said.

According to Sofjan, many businesses are now in dire straits
as a result of the currency crisis and the credit crunch.

"We hope that if some bona fide, well-managed businesses
default on their foreign debts the government will help bail them
out because such a failure is not caused by their mistake but
rather by force majeure created by the rupiah turmoil," he said.

Economist Faisal Basri wondered why projects with high risks
and funded with high-interest debts were not rescheduled while
those already well-prepared and financed with low-interest loans
were postponed.

Faisal cited the national Timor car program, the one million
hectare rice project on swamp land in Central Kalimantan and the
so-called strategic industrial projects, namely aircraft
development, as highly risky.

"Why have projects, which have been well-prepared and funded
by low-interest loans under the Consultative Group on Indonesia
(creditor consortium) been rescheduled?" he asked.

"I think projects using funds from the state budget must be
given top priority as they have been approved through a healthy
procedure," Faisal said.

Faisal criticized ministers involved in the decision making
process for the spending cut for their lack of courage to push
with rational measures.

"I am sure they are not so stupid. There must have been
political intervention that forced them to decide on such
measures," he added.

Managing chief for the World Bank in Indonesia, Dennis de
Tray, saw the budget spending cut as a normal and rational
measure in view of the anticipated decline in state revenues as a
result of the currency turmoil.

He said government revenues would decline because of a weaker
rupiah, higher interest costs and the temporary decline of
economic activities.

"It is therefore important the government reschedule some
projects in order to offset the decline in its revenues," he
said.

"It is also important the government delay the right projects
and continue to invest in the core aspect of development... in
human resources and property reduction," he said.

An executive of the All Indonesian Workers Association, Bomer
Pasaribu, foresaw an increase in the rate of open unemployment
and underemployment to 40 percent of the total labor force this
year and next year from 38 percent last year as a result of the
spending cut.

"I think the massive retrenchment will lower economic growth
to 5.5 percent this year. This means less job creation," Bomer
said. (rid/aly/das/vin)