House, government clear hurdles on budget

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)