Government unveils conservative budget

Government unveils conservative budget

JAKARTA (JP): President Megawati Soekarnoputri unveiled the
2002 draft state budget on Friday, which will require both
individuals and businesses to pay higher taxes and more for fuel
and electricity.

Megawati also cut spending by 2.3 percent of gross domestic
product (GDP) in her first budget since assuming power in July.

"Drafting of the 2002 state budget has taken into account
fiscal sustainability and domestic financing resources," Megawati
said at a plenary session of the House of Representatives (DPR)
when delivering the draft budget.

The 2002 draft budget assumes an economic growth rate of 5
percent, inflation at 8 percent, an exchange rate of Rp 8,500 per
U.S. dollar, and an oil price of $22 per barrel.

The budget deficit is set at 2.5 percent of GDP, compared with
3.7 percent of GDP in the 2001 budget.

The January-December 2002 budget puts state revenue at Rp
289.4 trillion (about $34.05 billion), or 17.1 percent of GDP,
compared with Rp 286 trillion, or 19.5 percent of GDP in the
current 2001 budget.

Government spending is cut to Rp 332.5 trillion (19.6 percent
of GDP) from Rp 340.32 trillion (23.2 percent of GDP), while
development spending is set at Rp 47.15 trillion (2.8 percent of
GDP), compared with Rp 45.46 trillion (3.1 percent of GDP).

Megawati said that fuel subsidies had to be reduced to Rp
32.29 trillion, compared with Rp 53.77 trillion allocated under
the current 2001 budget, to help save money for financing
development programs.

The subsidy cut will force the government to raise fuel
prices, which Megawati said would increase by an average of 30
percent, possibly from January 2002.

She said that electricity rates would also have to increase by
3 percent to 4 percent every quarter next year.

Raising fuel prices is a politically sensitive move in the
country. Former authoritarian president Soeharto was toppled in
1998 partly due to an increase in fuel prices.

"Cutting fuel subsidies is of paramount importance, otherwise
we will have no money to fund development programs," Megawati
said.

"There is no other choice except to increase the domestic
price of fuel. This decision has clearly been a very difficult
one, but we were forced to make it to maintain the continuation
of our state budget," she added.

To minimize the burden of increased fuel prices on those in
the low-income bracket, the government has earmarked Rp 2.2
trillion for "compensation programs," she said.

"With mutual cooperation and discipline to carry out a common
commitment, we hope we can overcome our problems one by one and
create a better future," Megawati said.

The budget will also force individuals and businesses to pay
more in taxes, as the target for tax revenue in 2002 is increased
to Rp 216.78 trillion from Rp 185.26 trillion.

"For the sake of efficiency and fairness, various tax holidays
will be minimized," she said.

The government is also planning to impose value-added tax on
goods such as video tapes, import tariffs on luxury goods such as
cars and increase the retail price of tobacco by around 20
percent.

The spending contraction had been expected by many, as the
government has to allocate a greater part of its revenue to
service both foreign and domestic debt, thus contributing little
to economic growth.

The government has allocated Rp 27.36 trillion for servicing
foreign debt, and Rp 59.6 trillion for domestic debt.

"The government is trying to strike a balance between two main
objectives: one is fiscal consolidation, and the other is to use
as much as possible in our budget to stimulate the economy," said
Finance Minister Boediono following the plenary session.

Megawati also vowed to accelerate the privatization program
and the sale of assets controlled by the Indonesian Bank
Restructuring Agency (IBRA), which had been criticized by the
country's key donors as progressing very slowly.

"To accelerate economic recovery, the sale of assets and
privatization of state-owned enterprises must be expedited," she
said, adding that the government would also work to restructure
private sector debt.

For the 2002 calender year, the government aims to rake in Rp
42.8 trillion from the sale of IBRA-held assets and Rp 6.5
trillion from the privatization of state-owned enterprises. More
than half of the proceeds will be used to cover next year's
budget deficit of Rp 43 trillion.

"IBRA will do its utmost to restructure assets under its
disposal, and a portion of its proceeds will be used to redeem
government bonds," Megawati said.

Meanwhile, Boediono said that the proceeds from privatization
would not solely be used to finance the budget deficit, as
happened in the past, but would also be used partly to redeem
outstanding government bonds, in a bid to reduce the burden on
the state budget in the future.

"We are proposing a policy whereby we will not use all (the
privatization revenue) to finance the budget deficit. We will use
some to repay domestic debt," Boediono said.

In the 2002 budget proposal, four sectors will receive a
significant allocation of funds: education, national culture,
youth and sports, with Rp11.552 trillion; agriculture, forestry,
the marine and fishery sector as well as irrigation, Rp 6.6
trillion; transportation, meteorology and geophysics, Rp 6.464
trillion; social welfare, health and women's empowerment, Rp
4.304 trillion.(03/10)