Govt to keep budget deficit at 3.7% of GDP

Govt to keep budget deficit at 3.7% of GDP

JAKARTA (JP): The government plans to maintain the 2001 state
budget deficit at around 3.7 percent of gross domestic product
(GDP) by adjusting revenue and expenditure targets, according to
Coordinating Minister for the Economy Rizal Ramli.

"We are considering several measures to reduce the deficit ...
We are working to achieve that target," Rizal said on Thursday in
a response to a question raised by journalists on the sidelines
of a seminar.

Earlier in the day, Anggito Abimanyu, a senior official at the
finance ministry, said that the government was considering four
measures to help limit the budget deficit to 3.7 percent of GDP.

Speaking after a meeting with visiting International Monetary
Fund (IMF) Asia Pacific deputy director Anoop Singh, Anggito said
that the measures would be soon proposed to the House of
Representatives.

The government had said earlier that due to the current
weakening of the rupiah and rising domestic interest rates, the
budget deficit this year could exceed 5 percent of GDP compared
with the initial projection of 3.7 percent of GDP, unless
measures were taken immediately.

In order to maintain the deficit at the initial estimate of
3.7 percent of GDP, the government would have to provide
additional funding of about Rp 35 billion (about US$35 billion)
for the state budget, experts estimated.

Plans to revise the state budget have been a major focus of
the current talks between the government and visiting IMF
mission.

The rupiah ended at Rp 11,095 per U.S. dollar on Thursday,
compared with the budget assumption of Rp 7,800, while the
interest rate of Bank Indonesia one-month SBI promissory notes
increased to 15.93 percent compared with 11.5 percent set in the
current budget. The combination of a weaker rupiah and higher
interest rate have put great pressure on the state budget.

The government and the IMF are currently trying to reach a new
agreement on the economic reform program that is a prerequisite
for the disbursement of the next IMF $400 million loan tranche to
the country, stalled late last year.

The IMF mission arrived last week, and is expected to complete
its review work here early next week.

The IMF told top legislators on Wednesday that agreement on a
new economic reform agenda could only be reached after the
legislature approved the revised state budget.

The legislature will end its current recess late this month.
The budget revision process in the legislature could take more
than a month, which means that the IMF could only disburse its
loan in June at the earliest.

Meanwhile, Rizal said that the measures being considered by
the government to limit the deficit level included raising tax
revenue, particularly income tax from wealthier citizens;
pressing on with the privatization program and the sale of assets
under the Indonesian Bank Restructuring Agency (IBRA); asking
multilateral lenders to agree to lower the rupiah financing cost
requirement in foreign-funded government projects; and asking
resource-rich provinces to buy shares in state-owned enterprises.

Under the current budget, tax revenue is targeted at Rp 180
trillion or nearly 60 percent of total expenditure.

The government asked IBRA to raise around Rp 27 trillion in
proceeds this year, while privatization proceeds were set at Rp
6.5 trillion.

Rizal said that reducing the local financing cost requirement,
currently around 40 percent of foreign-funded projects, would
help ease pressure on the state budget.

Government officials said earlier that the country was
expecting multilateral lenders to agree to reduce the local
financing cost requirement to as low as 20 percent.

Finance ministry officials have also said that under the
budget revision plan, the government would try to reduce spending
by asking resource-rich provinces to help finance local
development programs that are being financed by the state budget.

Elsewhere, Rizal said that the government would proceed with
plans to issue asset-backed bonds, despite protest from the Paris
Club of creditor nations.

"We'll send a letter to the Paris Club to explain our reasons
for doing it," he said.

The Paris Club reportedly sent a letter on April 6 to Rizal
urging the government to drop the plan to issue around $500
million worth of bonds backed by income from the sale of
liquefied natural gas sales to Singapore.

The plan to use assets as security in this way might cause
creditors to cancel the restructuring of the country's $5.8
billion sovereign debt agreed last year.

The World Bank also said earlier that the plan would
contradict the negative pledge condition set by the Bank, under
which the country could not freely pledge its assets to other
creditors, so that the senior status of the World Bank loan to
Indonesia would be maintained. (rei)