Thu, 03 Jul 2003

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.