Govt to cut 2003 budget deficit to 1% of GDP
Dadan Wijaksana, The Jakarta Post, Jakarta
The government aims to slash the state budget deficit to 1 percent of gross domestic product (GDP) next year from the 2.5 percent estimated for this year, according to Minister of Finance Boediono.
He said on Monday that the target would require a further reduction in subsidies and pumping up tax revenue to help offset huge budget spending, particularly on debt repayment.
"We predict the (2003) deficit to stand at one percent ... obviously we will have to further cut subsidies and increase revenues from taxes," Boediono told reporters on the sidelines of a meeting with the House of Representatives budget committee.
He did not elaborate.
Such an unpopular policy, however, may meet strong opposition from politicians as it would create more difficulties for the hard-pressed public, already suffering from the effects of years of economic crisis. Cutting down further on fuel subsidies, for instance, would inevitably raise fuel prices.
The government, however, doesn't have the luxury to run another huge deficit in the budget if it wants to create stable macroeconomic conditions, crucial for luring badly needed investment to push economic growth.
The government is targeting economic growth of between 4 percent and 6 percent in 2003 compared to the 4 percent projected for this year.
Inflation is targeted at between 7 percent and 9 percent, the rupiah exchange rate at between Rp 8,500 and Rp 9,500 per U.S. dollar, the interest rate on Bank Indonesia three-month SBI promissory notes at 12.5-14.5 percent, and the oil price at between $19 and $20 per barrel.
Analysts have said that a lower Bank Indonesia interest rate would help reduce the deficit as it would cut down on state budget spending to cover the interest on the government bonds issued to bail out ailing banks.
The government issued more than Rp 430 trillion worth of bonds to recapitalized banks. The interest on the bonds is linked to the interest rate on Bank Indonesia three-months SBI notes, which for this year is targeted to average 14 percent.
Bank Indonesia has been allowing the interest rate to decline since the beginning of this year. This trend will continue if inflationary pressures ease and the rupiah continues to strengthen.
Boediono said that the relatively optimistic economic targets for next year were based on better political conditions at home, coupled with a rapid recovery in the global economy.
Meanwhile, the House Budget Committee and the government agreed on Monday on the importance of seeking ways of dealing with the government's huge debt problem, especially domestic debt.
Debt repayments have been putting great pressure on the state budget, which analysts said had limited the ability of the budget to finance development programs important for pushing economic growth.
The state budget for this year has to allocate around Rp 90 trillion for debt repayments. This accounts for some 26 percent of state expenditure.
The latest data show that the country's total debt as of December last year stood at $134.8 billion, or some 90 percent of this year's predicted GDP of some $160 billion.
Around $60 billion of the debts are domestic ones resulting from the issuance of bonds to bail out banks in the late 1990s.