Economists warn govt over 2001 budget deficit

JAKARTA (JP): Economists warned that the government might fail to maintain the 2001 budget deficit at a safe level of 3.7 percent of gross domestic product (GDP) due to problems in collecting higher tax revenue.

Dradjat H. Wibowo of the Institute for Development of Economics and Finance (Indef) said on Thursday with the remaining six-month period in the current budget it would be impossible to collect some Rp 185.26 trillion in tax revenue.

"There will not be enough time to step up tax collections, not enough time to widen tax coverage and not enough time to increase tax ratio," he said, adding that amid the current domestic political turbulence tax collection would be even more difficult to implement.

"The government may effectively have only four months to collect taxes," he said.

Dradjat said the budget deficit would widen to 4.49 percent, or border on the psychologically dangerous 5 percent of GDP.

He was speaking at a seminar on Indef's mid-year assessment of the country's economy and business climate

Experts including the International Monetary Fund (IMF) have earlier warned that the 2001 budget deficit could widen to 6 percent of GDP due to the sharp drop in the value of the rupiah against the U.S. dollar, and rising domestic interest rates.

The government earlier this month raised fuel prices by an average of 30 percent and electricity rates are to rise by 20 percent in a bid to contain the budget deficit at 3.7 percent of GDP. But the House of Representatives rejected the government proposal to raise value added tax (VAT) to 12.5 percent from the current 10 percent.

Dradjat further said that if the government failed to obtain a debt rescheduling facility from the Paris Club of creditor nations, the deficit could balloon to more than 6.5 percent of GDP.

There has been concern that the Paris Club might decline to reschedule some US$2.7 billion in the country's sovereign debt maturing this year due to worsening relations with the IMF.

The Paris Club had indicated that it would only implement the debt rescheduling if the government managed to secure a new deal with the IMF, a matter which remains uncertain due to a dispute over the controversial amendment of the central bank law.

However, Coordinating Minister for the Economy Burhanuddin Abdullah said on Wednesday that he expected the IMF's review team to arrive in Jakarta next month.

He said that the government was now willing to compromise over the contentious central bank law issue.

Meanwhile Indef's director Bustanul Arifin said that the institute expected the rupiah be hovering in the range of Rp 9,000-Rp 10,000 per U.S. dollar this year.

The government has targeted the average exchange rate of the rupiah for this year at Rp 9,600 per dollar.

Bustanul said overall he expected an improved trend in exchange rates at the end of this year, but that daily rates are expected to fluctuate sharply especially leading toward the House's special session.

The People's Consultative Assembly (MPR), the country's highest legislative body, is scheduled to hold a special session on Aug. 1, possibly resulting in the impeachment of President Abdurrahman Wahid.

The rupiah has been under strong pressure particularly amid domestic political instability as Abdurrahman has been facing political pressure to step down.

The rupiah ended at Rp 11,440 per dollar late on Thursday, down from Rp 11,395.

Elsewhere, Bustanul predicted that the rupiah could improve to Rp 8,500 per dollar over the next two to three years. (tnt)