Deficit could expand to 1.5% of GDP

Urip Hudiono and Leony Aurora, The Jakarta Post, Jakarta

The 2004 budget deficit could increase slightly to 1.5 percent of the gross domestic product (GDP), as fuel subsidy costs remain under pressure from soaring oil prices, the finance minister said.

"This year's deficit target of 1.3 percent is no longer attainable and will certainly be surpassed," Minister of Finance Yusuf Anwar said on Wednesday.

"But the final deficit will still be manageable, reaching somewhere between 1.3 percent and 1.5 percent at the most."

The previous administration handed down to the current government deficit targets of Rp 26.3 trillion (US$2.9 billion) for 2004 and Rp 16.9 trillion, or 0.8 percent of GDP, for the 2005 draft budget, although this latter figure is still subject to revision.

Last year's budget deficit was Rp 33.7 trillion, slightly below the Rp 34.4 trillion target, or 1.9 percent of GDP.

The government newly installed in October is facing difficulties in meeting the deficit target amid the trend of soaring global oil prices.

Oil prices shot up recently to as high as $50 a barrel, quadrupling the politically sensitive fuel subsidy expenses to Rp 59.3 trillion -- even after the previous administration had revised its oil price assumption in the budget from $22 to $24.

"...It now depends on how the government keeps its spending in check and pushes more revenues by the end of the year," Yusuf said. "We will also adjust fuel prices, though we will assess which (fuel products) would affect the public the most."

Among the government's last resorts to push revenues is to haul in as much cash as possible from taxes, customs and excise.

Director General of Customs and Excise Eddy Abdurachman acknowledged that the government had requested his office to increase excise revenues from the immense tobacco industry by Rp 800 billion this year.

"We are confident we can meet the request, as (tobacco) production has increased this year, while we have also launched operations to prevent revenue leakages," he said.

Eddy said customs revenue as of Nov. 15 reached Rp 10.4 trillion, or 88 percent of its Rp 11.8 trillion target, while excise revenue stood at Rp 24.8 trillion, or 87 percent of its Rp 29.1 trillion target.

Meanwhile, Director General of Taxation Hadi Purnomo said tax revenues as of Nov. 22 had reached Rp 193.1 trillion, or 81 percent of its Rp 238 trillion target.

In addition, the finance ministry recently announced that it would issue its final batch of domestic bonds this year, worth Rp 1.7 trillion, and that it would sell its shares in Bank Permata and Bank Niaga to help finance the budget deficit.

State Minister of State Enterprises Sugiharto has requested top state-owned enterprises (SOEs) to increase their dividend payments to meet this year's Rp 9.1 trillion target. Dividend revenue from SOEs has reached Rp 8.6 trillion as of October.

Commenting on the widening deficit, Citibank economist Anton Gunawan was perplexed by the statements from finance ministry officials, which contradicted their previous statements that the original deficit target was still achievable.

"It is also odd that the government has chosen not to issue more bonds, if they really need more money to plug the deficit," he said.

Anton, however, was not worried about the situation, as an additional 0.2 percent deficit would be too small to affect the overall macroeconomic state.

Meanwhile, Dradjat H. Wibowo of the Institute for Development of Economics and Finance (Indef) said a rise in deficit was likely, as the government had no more time to boost revenues.

He advised the government not to cut fuel subsidies, however, as "the political cost would be too high".