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)