Government to revise 2003 state budget assumptions

Government to revise 2003 state budget assumptions

The Jakarta Post, Jakarta

Responding to the Bali terrorist strike, the government will
revise the assumptions for its 2003 draft state budget, possibly
resulting in a greater budget deficit but one that the World Bank
has estimated will require only limited additional funding.

Finance minister Boediono said on Thursday the government
would adjust the budget assumptions to take account of the likely
weakening of the economy because of the Bali bomb explosions.

"We're working on the various assumptions ... which of them
may be affected? We don't know yet," Boediono told reporters
after an informal consultation with legislators.

The massive bomb explosions, which killed nearly 200 people,
have clouded Indonesia's economic outlook with a subsequent
weaker tourism sector and another plunge in foreign direct
investment likely.

Boediono said that while the current state budget was "safe"
the government would need additional help with next year's
budget.

"We're trying to get more aid from our donors like Japan; our
biggest creditor," he said but added that any additional funding
would come as part of the loans to be extended by the
Consultative Group on Indonesia (CGI).

The CGI groups together Indonesia's main foreign creditor
countries. The group plans to hold its 12th annual meeting with
the government to pledge new loans to help cover the budget
deficit next year.

World Bank country director Andrew Steer agreed that Indonesia
needed extra help due to Bali, but added "I don't see financing
as the big problem issue. I see this an issue of confidence."

Steer urged the government to "more than ever" push for
structural reforms like sorting out its banking sector, improving
the judiciary and curbing corruption so as to bolster business
confidence.

He added that Indonesia's prudent macroeconomic management
also meant the country had some leeway to absorb a hit like Bali.

For now, the government expected a shortfall of around Rp
26.26 trillion (about $2.8 billion). That equaled about 1.3
percent of Indonesia's gross domestic product (GDP), which
measures the total value of the products and services produced
within the country over one year.

In its 2003 draft budget, the government has drawn up a number
of assumptions that determine the expected amount of expenditure
and revenue, or lack of it.

Amid signs of greater economic stability, the budget assumes
an average inflation rate of 8.7 percent, the rupiah at 8,700 to
the U.S. dollar, and Bank Indonesia three month rates averaging
13 percent.

Expecting world oil prices of around $20.50 a barrel, the
budget targets the economy to grow by 5 percent in 2003 compared
to about 4 percent this year.

But as the economic fallout of the Bali blasts starts to be
felt, economists say the draft budget was becoming unrealistic.

So far, the strongest signals have come from the tourism
sector where a string of cancellations are sapping revenues from
airlines, hotels and local economies in tourist destination
areas.

The impact does not stop there, however. Manufacturers fear
foreign buyers could divert next year's orders to safer
countries.

At least one international insurance committee has raised the
premium risk on Indonesia after including this country in its
list of war-risk zones, on a par with Afghanistan and Somalia.

A senior Bank Indonesia official warned of foreign lending
institutions setting higher risk premiums for investments in
Indonesia. These would further erode capital inflows.

Meanwhile, banks face a drop in fee-based income as tourists,
who contribute around $5 billion a year in foreign exchange
earnings, mainly via credit cards, money transfers and travelers
cheques, are now likely to spend a hefty chunk of this money
elsewhere.