House cautions govt to be realistic about state budget

JAKARTA (JP): The House of Representatives warned the government on Thursday not to be overly optimistic with its 2000 state budget economic targets amid the current social and political instability, and the weakening rupiah.

The Indonesian Democratic Party of Struggle (PDI Perjuangan) faction, the largest political party at the House, said that resolving the social and political problems were crucial to ensure the country's economic recovery.

"The government must not be overly optimistic as the economy is still fragile because of various psychological factors resulting from instable security (condition), the volatility of the rupiah and oil prices," said PDI Perjuangan spokeswoman Ni Gusti Ayu Eka Sukmadewi Jaksa during a plenary session of the April-December 2000 state budget draft between the House and Minister of Finance Bambang Sudibyo.

The government assumes in the budget draft an economic growth of 3.8 percent, an inflation rate of 4.8 percent, an international oil price of US$18 per barrel and an exchange rate of the rupiah at Rp 7,000 per U.S. dollar.

The House is expected to approve the budget draft later this month.

"The security problem can be an obstacle to the economic recovery," said Andi Najmi Fuaidi of the National Awakening Party (PKB), which was founded by President Abdurrahman Wahid.

"The economy can't grow if the political and security problems are not handled properly.

"Foreign investors will continue to adopt a wait-and-see attitude until the problems are resolved," Fuaidi said.

After being devastated by a two-year economic crisis, there have been signs that the economy is moving toward a recovery. But the economic gains are being undermined by the infighting between political elites, separatist demands and sectarian clashes.

The stand-off between President Abdurrahman Wahid and former Indonesian Military (TNI) commander Gen. Wiranto, who is now Coordinating Minister for Political Affairs and Security, has created uncertainty and contributed to the weakening of the rupiah against the U.S. dollar.

The rupiah closed at Rp 7,660 to the dollar on Thursday compared to about Rp 7,400 earlier in the week.

The World Bank has also said that the economic gains obtained by the new democratically elected government were still fragile due to the social and political instability.

Elsewhere, the House factions highlighted several crucial issues in the state budget.

The Golkar Party faction said that it opposed the government plans to raise fuel prices by reducing the subsidy until the government could clearly and honestly explain the corruption at the state oil and gas firm Pertamina and the inefficiency in the country's oil production and transportation system.

The PDI Perjuangan faction also warned the government to be extra careful in raising fuel prices and electricity rates because it could create new "social problems."

The government had earlier said that it planned to raise fuel prices by about 20 percent and electricity rates by 35 percent. But the final say will be decided by the House.

Golkar and PDI Perjuangan also urged the government to take serious steps to reschedule the country's sovereign debt.

"There has to be a new breakthrough to lift the country out of this debt trap," said Golkar spokesman Eki Syachruddin, pointing to the country's high debt service ratio of 47 percent.

"We want to know what measures the government will take to get out of this debt trap," he added.

Indonesia's major donors, grouped under the Consultative Group on Indonesia (CGI), pledged on Wednesday $4.7 billion in loans to help finance the 2000 state budget deficit, estimated at 5 percent of GDP.

The government is expected to meet the House soon to obtain an endorsement of its foreign loan needs.

Meanwhile, the PKB faction demanded the government raise the salaries of government employees by up to 100 percent in a bid to boost the welfare of the bureaucrats and to prevent corruption.

The government earlier said that it only intended to give a 20 percent raise because of the limited budget.

But spokesman Fuaidi said that a 20 percent increase would not be sufficient to cover the daily needs of the government employees.

He also said that the 20 percent raise was much smaller compared to the huge cost of the government's bank restructuring and recapitalization program.

"The welfare of government employees must be more of a priority than bank recapitalization," he said. (rei)