House, government clear hurdles on budget

JAKARTA (JP): The House of Representatives and the government have reached an agreement on the major items in the proposed revision of the 2001 state budget.

As of late on Friday, the final session between the House budgetary task force and Minister of Finance Rizal Ramli were continuing, although the House was expected to approve the revised budget at the conclusion of the session.

"I expect we can conclude these talks even if we have to stay until dawn," Rizal said during the meeting.

The House's approval of the revised state budget is one of the conditions set by the International Monetary Fund (IMF) for the disbursement of its next loan tranche to the country. The money from the IMF is considered as vital in helping revive confidence in the ailing economy.

One of the crucial decisions reached during the final talks was to raise the government's dividend revenue from the country's some 159 state-owned enterprises to about Rp 9 trillion (US$793 million), compared to the government's proposal of Rp 8 trillion.

The dividend revenue will include Rp 7.5 trillion from state enterprises under the supervision of the finance ministry, Rp 500 billion from state-owned oil and gas company Pertamina and Rp 1 trillion from Bank Indonesia. The government does not tax the central bank, but in return the bank has to contribute part of its "surplus", particularly from its foreign currency management.

Late on Thursday, the House rejected the government's proposal to raise the value added tax (VAT) to 12.5 percent from the current 10 percent.

Legislators reasoned that the VAT increase would create too great a burden on the people and the business sector, who are already coping with the government's plan to raise fuel prices by an average of 30 percent and electricity rates by 20 percent.

The government proposed the revisions to the January-December state budget following the sharp plunge in the value of the rupiah against the U.S. dollar and the increase in domestic interest rates.

The proposed revisions include various measures to help limit the budget deficit at about 3.8 percent of gross domestic product (GDP). Without proper measures, the deficit threatens to widen to the dangerous level of 6 percent of GDP as a result of the plunge in the rupiah and soaring interest rates.

Some of the more important measures proposed by the government to curb the budget deficit include increasing fuel prices, electricity rates and the VAT, and issuing some Rp 2.9 trillion in deficit bonds to wealthier provinces and regencies to help finance the central government's deficit.

The House has already rejected the VAT increase and as of late on Friday, the legislators had yet to approve the issuance of the bonds.

The House task force determined that the 2001 deficit should be set at 3.7 percent of GDP, similar to the figure set in the original state budget approved by the House in January.

In the revised budget, the exchange rate of the rupiah against the U.S. dollar will be assumed at Rp 9,600 per dollar (compared to Rp 7,800 per dollar in the original budget), the inflation rate at 9.3 percent (compared to 7.2 percent), economic growth at 3.5 percent (5 percent) and the interest rate of Bank Indonesia's three-month SBI promissory notes at 15 percent (11.5 percent).

The House has already approved these new macroeconomic assumptions.

Most of the remaining issues left to be resolved center on the government's routine and development expenditures, including the allocation of money for servicing domestic and overseas debts.

The government has issued about Rp 430 trillion worth of bonds to help recapitalize the country's banking sector, with the state budget covering the interest rate of these bonds. The government initially allocated about Rp 58 trillion to pay the coupons of the bonds, but the rise in domestic interest rates forced the government to increase the allocation to about Rp 61 trillion.

The sharp plunge of the rupiah has also inflated the allocation for servicing foreign debts.

The government and the House budgetary task force began their nine-day deliberation of the revised budget earlier this month, at which time Prijadi Praptosuhardjo was finance minister. He was replaced by Rizal earlier this week in a reshuffle of economics ministers. (rei)