House approves 2003 budget revision

The Jakarta Post, Jakarta

The House of Representatives state budget commission has approved the revision to the 2003 state budget that better reflects recent developments in the economy, but the deficit remains at Rp 34.4 trillion.

The approval came following weeks of intense debates between lawmakers at the commission and Ministry of Finance officials, who had proposed the draft revision to the House on Aug. 26.

Chairman of the commission Abdullah Zainie said on Tuesday that the deficit target would be maintained as initially set, despite falling revenues from taxes and higher expenditures.

Tax revenues are expected to reach Rp 248.5 trillion this year, falling short of the initial target of Rp 254.1 trillion. Full-year expenditures are also expected to be higher than their earlier estimate, partly because of ballooning government subsidies.

With subsidies increased by more than Rp 10 trillion, expenditures will be pushed up to Rp 257.9 trillion, instead of Rp 253.7 trillion as planned.

The lower tax revenues was attributed to a lower-than-expected central bank interest rate and a stronger currency, which cut into revenues from income tax, value-added tax, and land and building tax.

These are the same issues that prompted the government about a month ago to propose a budget revision that expanded the deficit to Rp 35.1 trillion to accommodate the shortfalls.

However, given the fact that the higher-than-estimated deficit has made it even more difficult to cover, lawmakers and the government finally agreed to maintain the initial figure by optimizing other source of financing.

Under the revised budget, non-tax revenues had to be adjusted to Rp 94 trillion from the original target of Rp 82 trillion, which mostly comes from natural resources, including oil and natural gas.

Some adjustments have also been made in financing to accommodate the budget deficit.

For example, the government bond issue will be raised from Rp 7.7 trillion to Rp 11.7 trillion, while funds to buy back maturing bonds would be cut from Rp 13.6 trillion to Rp 8.5 trillion.

State Budget

2002 2003 Assumption (real) (Initial) (Revised)

1. GDP* (%) 3.7 4.0 4.0

2. GDP* (Rp) 1,610.0t 1,940.0t 1,791.0t

3. Inflation (%) 10.03 9.0 6.0

4. Rupiah 9,311 9,000 8,500

5. SBI (3-month %) 15.2 13.0 10.1

6. Oil price 23.5 22.0 27.9

(US$/barrel)

7. Oil output 1.26m 1.27m 1.09m

(barrel per day)

Source: The House State Budget Commission

* GDP: Gross Domestic Product