Govt urged to reduce current account deficit
Govt urged to reduce current account deficit
JAKARTA (JP): Pressure on the government to take immediate
steps to cut the burgeoning current account deficit is growing
with more business leaders and academics joining the chorus.
Chase Manhattan's senior country officer for Indonesia, Morgan
T. McGrath, said Wednesday the government should continue to
diversify the country's export mix and prepay its high interest
external debt.
Mari E. Pangestu, head of the economic department at the
Centre for Strategic and International Studies, suggested
yesterday that the government produce more budget surpluses,
guide investment to productive sectors and improve public
savings.
She projected that the current account deficit would start to
shrink to US$8.9 billion next year from her $9.6 billion deficit
projection for this year.
They agreed that the current account deficit, equivalent to 4
percent of gross domestic product, was high for the country
considering it had foreign debts of $110 billion.
The government announced earlier this month that the current
account deficit would grow to $8.8 billion this fiscal year from
$7 billion last fiscal year. The deficit is projected to blow out
to $9.8 billion next fiscal year.
"It's something to watch. At 4 percent of gross domestic
product, it becomes a large number because Indonesia also has a
large level of foreign debt," McGrath said.
McGrath, nevertheless, praised the government's efforts to
reduce the current account deficit by diversifying the export mix
and using the proceeds from privatizing state companies to reduce
its foreign debt.
The government said earlier this month that it had repaid $2.6
billion of its high-interest debt early in the last three fiscal
years, and was in the process of repaying another $750 million
early. These debt prepayments are expected to save the government
$1.45 billion in cumulative interest payments.
Mari suggested the government continue to privatize state
enterprises, not only to get more cash to prepay its debts but
also to reduce its spending on government enterprises.
"By reducing its spending on government enterprises, the
government can produce more budget surpluses, which will be
important for financing productive investment to create export
revenue," Mari said.
She suggested the government privatize more state enterprises,
especially public utilities.
Besides reducing spending, the government should also find
ways to raise its domestic revenue to reduce its dependence on
foreign funds for development projects.
"I think the government can still increase its revenue from
taxes by intensifying tax collection and expanding tax coverage,"
Mari said.
She noted that the government could increase its revenue from
land taxes. She argued that most land in Indonesia was under-
valued and under-taxed.
She suggested the government impose a progressive tax on land
to stop people investing in property instead of productive
sectors which would generate exports.
"If the government can now direct investment to productive
sectors and invest more on the sectors as well as improve public
saving, it will be able to reduce current account deficits in the
future," Mari said.
Both McGrath and Mari commended the government's success in
attracting foreign capital, especially from direct investment, to
finance the current account deficit.
The government projects that the balance of payments will
remain in surplus, with a more than $2 billion surplus this year
and $1.45 billion surplus next fiscal year.
McGrath said the country's successful financial management was
reflected by the performance of its top companies.
"When you look at major Indonesian borrowers like Indofood,
Sampoerna and Astra International, you see that these companies
-- because they have strong businesses and good management --
reflect the same economic trends taking place in the country as a
whole," he said. (pwn/rid)