Habibie unveils 'survival' budget

JAKARTA (JP): President B.J. Habibie on Tuesday unveiled the draft of the 1999/2000 State Budget, devised for the extraordinary conditions of worsening fortunes of the business sector and depressed global oil prices.

The zero-growth budget relies heavily on foreign loans because prices of traditional revenue-earner oil are projected to remain at record lows. Subsidies and other forms of assistance are maintained to help the public and the banking sector survive the economic hardship.

Set for the fiscal year beginning in April and ending in March next year, the budget assumes zero economic growth, 17 percent inflation and a rupiah-U.S. dollar exchange rate of Rp 7,500, which Habibie considered a reflection of positive economic developments in recent months.

The present budget assumed economic contraction of minus 12 percent, inflation of 66 percent and a Rp 10,600 exchange rate.

"Nevertheless, we realize that the economy has not yet recovered, it's still far from a normal condition," Habibie told the House of Representatives when presenting the draft.

"With zero growth, it means that we still can't expect increasing opportunities for employment, but at least we have to maintain the current employment so it does not decrease."

The new budget is balanced at Rp 218.2 trillion, 83 percent of the 1998/1999 budget size in terms of rupiah but a 17 percent rise gauged in the U.S. dollar.

Habibie said the projected oil price of US$10.5 per barrel, compared to current $13 per barrel, was one reason for the smaller budget.

"Realizing that this year will still be difficult for the people's lives, the various subsidies -- for food, especially rice, oil, electricity, and medicines -- will be continued."

Subsidies account for about Rp 14.33 trillion, and another Rp 3.9 trillion is earmarked for other social needs and funding for the June general election.

Overall routine expenditures amount to Rp 134.55 trillion, 21.4 percent less than budgeted for the current fiscal year. It accommodates the plan to raise salaries of civil servants, members of the Armed Forces and retirees.

The increase has yet to be approved by the House, Habibie said.

The largest chunk of routine expenditures is allocated for interest payments, costing about Rp 44.43 trillion, on government debts.

It is 31 percent lower than the amount allocated in the current budget, due to the strengthening of the rupiah and last year's agreement with the Paris Club creditor nations to suspend principal payment on the country's bilateral borrowings for two years starting 1998/1999.

Another huge burden for the budget is the Rp 18 trillion allocated for recapitalization of the banking sector.

The International Monetary Fund (IMF) expects recapitalization will cost about Rp 300 trillion. The government plans to provide 80 percent of the funding through issuing bonds, in which the state budget will bear part of the coupon rate of the bonds.

Minister of Finance Bambang Subianto said in a late Monday news conference that the cost of the coupon rate would amount to about Rp 34 trillion, in which Rp 18 trillion would come from the budget and the remainder would be sourced from the sale of nonperforming assets of banks in the recapitalization program.

Several leading opposition figures have criticized the costly recapitalization program.

"Because of the critical condition of the banks we have inherited, the recovery process will need a considerable amount of time and funding," Habibie said in defending his administration's policy.

"Settling the banks' problems, and private sector debts, hold a central place."

He believed the recovery of the country's economy from the 18- month-old crisis would depend heavily on the success of restoring the banking sector and the real sector.

In revenue, foreign loans continue to have a dominant contribution -- amounting to Rp 77.40 trillion -- to plug a projected deficit of 4.8 percent of GDP.

"Foreign revenues both in terms of program loans and project loans will still be needed because domestic revenues cannot be expected to fulfill the budget needs yet," Habibie said.

Domestic revenue totals Rp 140.80 trillion, with more than 50 percent derived from income tax and value-added tax. Revenues from oil and gas are projected to decline by 57.8 percent to Rp 20.96 trillion.

Habibie may not see the budget, which has to be approved by the legislature, to realization because a general election is scheduled in June. The presidential election will follow in November. (rei)

Table: Government Budget 1998/1999 and 1999/2000 (draft) (in billions of rupiah)

REVENUES 1998/1999 1999/2000 % CHANGE

A. DOMESTIC REVENUES 149,302.5 140,803.8 -5.7

I. Oil and Gas 49,711.4 20,965.0 -57.8

Oil 32,908.6 12,443.4 -62.2

Gas 16,802.8 8,521.6 -49.3

II. Non-oil and gas 99.591.1 119,838.8 20.3

1. Income tax 25,846.2 40,626.0 57.2

2. Value added tax 28,940.0 34,697.4 19.9

3. Import duties 5,494.9 2.950.3 -46.3

4. Excises 7,755.9 9,360.0 20.7

5. Export duties 942.8 2,594.5 175.2

6. Land and building tax 3,411.0 3,247.0 -4.8

7. Other taxes 540.0 564.5 4.5

8. Non-tax revenue 26,660.3 25,799.1 -3.2

B. FOREIGN REVENUES 114,585.6 77,400.0 -32.5

I. Program loan 74,044.7 47,400.0 -36.0

II. Project loan 40,540.9 30,000.0 -26.0

TOTAL 263,888.1 218,203.8 -17.3

EXPENDITURES 1998/1999 1999/2000 % CHANGE

A. ROUTINE EXPENDITURES 171,205.1 134,555.5 -21.4

I. Personnel expenditures 24,781.4 32,037.1 29.3

1. Salaries/pension 19,120.0 25,292.9 32.3

2. Rice allowances 1,872.4 2,087.1 11.5

3. Food allowances 1,484.4 2,106.9 41.9

4. Other domestic personnel 1,154.6 1,489.9 29.0

5. Overseas personnel 1,150.0 1,060.3 -7.8

II. Material expenditures 11,425.1 11,039.0 -3.4

1. Domestic 10,059.7 10,006.8 -0.5

2. External 1,365.4 1,032.2 -24.4

III. Regional routine expenditures 13,289.7 18,429.6 38.7

1. Personnel expenditure 12,606.5 17,628.8 39.8

2. Non-personnel expenditure 683.2 800.8 17.2

IV. Amort and interest payment 66,236.4 44,810.9 -32.3

1. Domestic debt 1,940.1 380.1 -80.4

2. Foreign debt 64,296.3 44,430.8 -30.9

V. Others 55,472.5 28,238.9 -49.1

1. Oil subsidies 27,534.0 9,985.8 -63.7

2. Others 27,938.5 18,253.1 -34.7

B. DEVELOPMENT EXPENDITURES 92,683.0 83,648.3 -9.7

I. Rupiah financing 52,142.1 53,648.3 2.9

II. Project financing 40,540.9 30,000.0 -26.0

TOTAL 263,888.1 218,203.8 -17.3

Government savings -21.902.6 6,248.3