Govt targets budget surplus by 2005

Govt targets budget surplus by 2005

Evi Mariani, The Jakarta Post, Jakarta

Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti
said on Wednesday that Indonesia would be able to achieve a state
budget surplus by 2005 due to improving fiscal conditions --
something that would finally allow the country to cut its
dependence on foreign loans.

"I do not think at this moment there is any debate on
Indonesia's ability to reach the target of a surplus by 2005," he
told a regional investment forum.

He said that in addition to maintaining current macroeconomic
stability, increased tax revenue would also be crucial to
achieving the goal, pointing out that the country's tax ratio
level should be increased to between 16 percent and 17 percent of
gross domestic product (GDP) from the current level of 13
percent.

Improvements in the macroeconomic indicators, such as the
strengthening of the rupiah, and the declines in inflation and
interest rates, have allowed the government to gradually reduce
its budget deficit from over 3.5 percent of GDP three years ago
to the around 1.8 percent expected this year. For next year, the
government is targeting a lower deficit of 1 percent of GDP.

These positive developments and a number of tough economic
reform measures taken by the government are also expected to cut
the national debt to below 70 percent of GDP from around 100
percent in 2001.

Achieving a budget surplus would release the government from
having to beg for loans from foreign donors to plug the deficit
as has been happening for many years now. For this year, the
Consultative Group on Indonesia, a group of the country's
traditional lenders coordinated by the World Bank, pledged some
US$2.7 billion in loans to help finance the estimated Rp 34
trillion (about US$4.14 billion) deficit. The other sources of
deficit financing include privatization proceeds and the sales of
assets held by the Indonesian Bank Restructuring Agency.

Many figures have been putting strong pressure on the
government to stop asking for foreign loans as the loans in the
past were largely embezzled and the country's foreign debt had
reached an alarming level.

Initially, the government intended to achieve a surplus by
2004, but the Bali bombing and the weakening global economy have
affected the country's economic growth, thus prompting the
government to delay the target.

Meanwhile, the Ministry of Finance appears to have a different
view from that of Dorodjatun, as Anggito Abimanyu, a senior
official in the ministry, told reporters on Tuesday that a
surplus of 0.8 percent of GDP would likely be achieved by 2006.

Danareksa Research Institute economist Raden Pardede welcomed
the government's aim to achieve a budget surplus, but warned that
a surplus would only benefit the public if spending on
infrastructure, education and health were increased from the
current meager level of between 1.4 percent and 1.8 percent of
GDP to at least 6 percent. By way of comparison, government
spending on these sectors in neighboring Malaysia amounts to 10
percent.

"If the government plans to achieve a surplus by boosting tax
revenue, the public will demand a quid pro quo for the taxes they
pay," he added.

Elsewhere, Dorodjatun said that assuming the country's GDP
growth reached between 6 percent and 7 percent in the coming
years, Indonesia would be able to fully repay its debts to the
IMF by 2007. It is estimated that the country's debts to the IMF
will reach $9.5 billion by the end of this year.