Government to set rupiah at 7,800-8,500 in 2002 budget

JAKARTA (JP): The government will base the 2002 state budget on an exchange rate of between Rp 7,800 and Rp 8,500 against the U.S. dollar although the Indonesian currency remains under strong pressure.

Finance Minister Prijadi Praptosuhardjo said on Thursday the government was confident that the economy would allow the rupiah to stabilize at that range.

Speaking before the House of Representatives' budget committee, Prijadi said that the assumption was made in line with efforts to keep the rupiah exchange rate conducive for the economy.

"We see an improvement of noneconomic factors in 2002 and this will bring a positive impact on investment activities, consumption, exports and the rupiah exchange rate," he said during the hearing.

The current state budget, which will end in December, is based upon a rupiah-dollar exchange rate of Rp 7,800.

But a combination of political and economic uncertainties has sent the rupiah sliding from that target since the fourth quarter of last year.

The rupiah has remained in a weak position for months. Analysts estimate that the rupiah could further weaken to below Rp 10,000 against the American greenback.

A Bank Indonesia ruling, which was recently issued to curb speculative attacks on the currency, has only slowed down the rupiah's fall.

The rupiah ended Thursday trading at 9,930 against the dollar from 9,880, after Standard & Poor downgraded Indonesia's sovereign debt rating to negative from stable.

But Prijadi said in addition to the expected improvement in the political situation, the country's ability to avoid the impact of the slowdown in the global economy would become an incentive for a stronger rupiah.

"The estimated global economic slowdown in the year 2002 will have no significant impact on the Indonesian economy," he told legislators.

But he did not say how Indonesia was going to achieve that, given the country's high dependence on export revenues to fuel economic growth.

The government also plans to set an economic growth assumption of between 4.5 percent and 5.5 percent in the 2002 state budget or within the same range for the current budget.

The inflation rate target in the next budget will be set at between 6 percent to 9 percent as compared to 7 percent in the present budget.

The oil price assumption to calculate state revenues from crude oil exports will be set at between $18 and $22 per barrel as compared to $24 per barrel in the current budget.

A sharp increase in export earnings partly due to high oil prices became a dominant factor in the country's economic growth during 2000.

Crude oil production from state owned oil and gas company Pertamina is estimated at between 1.38 million barrels per day (bpd) to 1.46 million bpd.

In 2002, the government will prioritize educational activities, absorbing about 25 percent of the total budget.

Next comes spending on agriculture and irrigation which will fork out a 15 percent share of the government's budget.

Transportation developments are allotted with a 12 percent share, followed by health and welfare spending with 10 percent.

Spending on mines and the energy sector is estimated to take up 6.5 percent of the budget, while the security sector will probably need 6 percent.

The government will issue its preliminary state budget assumptions so that the House's budget committee can assess the figures.

A draft of the 2002 state budget, which runs from January to December, will be presented in October.(bkm)