Tue, 18 Sep 2001

Govt to stick with budget assumptions despite attacks on U.S.

JAKARTA (JP): The government said Monday that it would maintain the macroeconomic assumptions employed in the 2002 draft state budget despite recent developments in the global economy brought about by the terrorist attacks on the United States.

Finance minister Boediono said that the macroeconomic assumptions were realistic enough, and that it was too early to predict how the attacks on the U.S. would effect either the global or the domestic economy.

"The same goes for the international oil market. Although there have been indications that the price of crude oil is rising, we need to exercise caution, especially as this external indicator is only temporary and can't yet be used as a benchmark," he told a plenary meeting with the House of Representatives.

Two aircraft slammed into the World Trade Center last Tuesday causing its two towers to crash to the ground. Another aircraft slammed into the Pentagon in Washington, seriously damaging the building. A fourth plane crashed in Pennsylvania.

The attacks have raised concerns about a possible global economic depression.

In the 2002 draft state budget, the government has assumed an economic growth rate of 5 percent, inflation rate of 8 percent, rupiah-dollar exchange rate of Rp 8,500, three-month SBI rate of 14 percent, crude oil price of US$22 per barrel, and an oil production level of 1.23 million barrels per day (bpd).

The deficit was set at 2.5 percent of GDP or about Rp 43 trillion, compared to 3.7 percent in the current 2001 state budget.

"The government is fully aware that with a deficit of 2.5 percent of GDP the country's financial situation in 2002 will still be tight," he said.

However, to help stimulate the country's economy and therefore cover the 2.5 percent deficit, the government will content itself with setting a tax ratio of 12.8 percent instead of the 13.6 percent initially agreed with the House budget committee, Boediono said.

He said that it was important for the revival of an ailing economy that it not be overburdened with a high tax ratio.

The government expects to receive Rp 41.8 trillion (about $4.6 billion) in cash from the privatization of state enterprises and the sale of assets managed by IBRA, of which 60 percent will be used to cover the 2002 state budget deficit, Boediono said.

The remaining Rp 16.4 trillion will go on redeeming government bonds.

Another Rp 17.6 trillion needed for covering the deficit will come from overseas sources, including loan programs under the Consultative Group for Indonesia (CGI) and the restructuring of about Rp 34.7 trillion of Indonesia's sovereign debt through Paris Club III.

"To achieve maximum financial support from the CGI, we will need to satisfy other requirements for the disbursement of ongoing loan programs, such as those organized by the World Bank, Asian Development Bank and the Japanese government," Boediono said. Paris Club

Elsewhere, Boediono said that the postponement of the Paris Club meeting of creditor nations due to the attack on the United States would not effect the Club's commitment to rescheduling the country's sovereign debts maturing in 2001 and 2002.

"I'm optimistic that we will achieve (a rescheduling) in the near future," he said on the sidelines of the plenary meeting with the House.

Last week's Paris Club meeting with the government had to be postponed because the representatives from the United States were unable to travel to Paris.

"It was just a technical problem. We heard there were some (representatives) who failed to arrive because there were no planes out," Boediono said.

Asked about the prospects of an additional rescheduling facility from the Paris Club, Boediono said that the negotiations were still at the preliminary stage and that he would still need to approach the individual creditor nations for support.(tnt)