Govt unveils draft budget with political nuance

Govt unveils draft budget with political nuance

Dadan Wijaksana/Fitri Wulandari
The Jakarta Post/Jakarta

President Megawati Soekarnoputri, facing a runoff battle on Sept.
20, unveiled on Monday the 2005 state budget draft, which
promises higher growth, a lower deficit and a rise in the fuel
subsidy, all of which some economists see as unrealistic.

The proposed budget projected economic growth of 5.4 percent
in 2005 from an expected 4.8 percent this year. It also projected
that deficit would decline to 0.8 percent of gross domestic
product from an estimated 1.2 percent of GDP this year.

The targets are based on the assumption that oil prices next
year will average US$24 per barrel, which some say is overly
optimistic given that oil prices are currently at record levels
of more than $45 per barrel and no one can say when the prices
will peak.

Standard Chartered economist Fauzi Ichsan, Chatib Basri of the
University of Indonesia and Iman Sugema of the Institute for the
Development of Economics and Finance were unanimous in their
opinion that the targets were unrealistic and driven by political
motives ahead of the runoff.

"They (the government) are pushing optimism to the limit. But
we need more concrete evidence of that optimism," Fauzi told The
Jakarta Post on Monday, adding that the budget had a political
flavor as the current administration was seeking reelection.

"Politically, it is difficult for Megawati to say that the
global economy is unfavorable for our economy. She has to be as
equally optimistic as SBY, who has promised a better economy,"
Fauzi said, referring to Susilo Bambang Yudhoyono, who is leading
Megawati in all of the opinion polls ahead of the runoff.

It is feared high oil prices will derail the global economic
recovery, which in turn would hamper the country's exports, a
crucial factor in accelerating economic growth.

"This is politics. There is a good possibility there will be a
revision. This draft has to remain open for the next government
to make some adjustments.

"That includes Megawati. If she is reelected, she will have to
be brave enough to make some revisions," Chatib said, adding that
aside from some of the basic assumptions, the tax revenue target
and the fuel subsidy could be revised.

Chatib and Fauzi agreed that it would be extremely difficult
to meet the budget targets, and would require a drastic change in
the investment climate, which Fauzi said was very unlikely.

The state budget draft is expected to be deliberated soon by
the current House of Representatives, and is scheduled to be
completed before the newly elected lawmakers and government
assume office in October.

The government proposed a more than 26 percent increase in
subsidy spending next year to Rp 33.6 trillion, a large part of
which will go to finance the fuel subsidy.
Some see this as an effort by Megawati to win wide-ranging
political support, as the lower classes will enjoy inexpensive
cooking fuel, while car owners will benefit from cheaper gas.

Iman, however, warned that this policy could turn into a "time
bomb", especially if the average oil prices next year are much
higher than targeted, thus widening the budget deficit.

If that happens, he said, it would cast a shadow over various
development projects such as bridges and roads, while the
development of some new schools and hospitals would also have to
be halted.

The government is struggling to revise the current budget
because the fuel subsidy allocated for this year will have to be
increased in response to the higher oil prices.

The International Monetary Fund, as quoted by Bloomberg,
described the deficit target as "ambitious", but added that it
was consistent with the overall availability of financing, and
should keep the public debt-to-GDP ratio on a declining path.

"The prudent budget ... would preserve priority spending on
social and development needs," it said in a statement.

Spending in 2005 would be capped at Rp 361 trillion from Rp
368.8 trillion in 2004, while revenue was seen as increasing
slightly to Rp 377.9 trillion from Rp 343.9 trillion this year.

Editorial on page 6
Related stories and table on page 13