House prepared to amend budget

House prepared to amend budget

JAKARTA (JP): House of Representatives Speaker Akbar Tandjung
said on Wednesday that the legislature was ready to meet with the
government to quickly complete the planned revision of the 2001
state budget that has become a prerequisite for the disbursement
of the crucial International Monetary Fund (IMF) loan.

Akbar said that various assumptions set under the current
budget were no longer realistic amid the weakening rupiah and
soaring interest rate.

"... The House is ready to revise quickly the 2001 state
budget ... together with the government," he said in a speech at
the opening of the House's second session period after a one
month recess.

"The demand of the IMF to revise the current budget is in line
with the thinking of the House ...," he added.

The current state budget is facing the risk of a much greater
deficit which may lead to a severe fiscal catastrophe unless
additional measures are quickly taken.

The deficit problem has become the main focus of talks between
the government and the IMF special mission during the past two
weeks.

Visiting IMF deputy director for Asia Pacific Anoop Singh told
key legislators during a meeting last week that the IMF would
sign a new agreement on economic reform measures with the
government only after the budget revision plan had been approved
by the legislature.

The signing of the new agreement would pave the way for the
disbursement of the third US$400 million loan tranche of the IMF
$5 billion bailout fund for Indonesia which was delayed last year
due to signs that the government was wavering in its
implementation of the agreed reform agenda.

"The loan may not be large in terms of the amount, but its
significance and implications are enormous, particularly in
reviving international confidence in the country's economic
recovery," Akbar said.

Akbar's statement may help quell worries that the House, which
is currently embroiled in a political battle with President
Abdurrahman Wahid, may try to block the government's plans to
revise the state budget and resolve the growing deficit problem.

Earlier this week, Coordinating Minister for the Economy Rizal
Ramli told the Consultative Group on Indonesia (CGI), which
groups together the country's usual donors, that the government
expected to be able to complete the budget revision with the
House sometime in the middle of May.

Akbar said that cutting down spending and raising tax revenue
would be inevitable to help resolve the deficit problem,
particularly as the House wanted the government to focus on
domestic financing to plug the budget gap.

"For this reason, the House is also urging the government to
try to accelerate the sale of assets (under the control of the
Indonesian Bank Restructuring Agency or IBRA) and the
privatization of state-owned enterprises," he said.

Legislators have been perceived as a potential obstacle to the
smooth sale of IBRA assets and privatization program as evidenced
in the past, amid rising nationalistic sentiment and worries of a
"fire sale".

The government initially set the current budget deficit at 3.7
percent of gross domestic product (GDP), but unless measures are
immediately taken, the deficit could expand to the dangerous
level of 6 percent of GDP as expenditure increases, particularly
due to the weakening of the rupiah and rising domestic interest
rates.

The government and the IMF, however, have reached a broad
agreement to maintain the deficit at 3.7 percent of GDP by taking
what Finance Minister Prijadi Praptosuhardjo has called a package
of fiscal adjustment measures.

The government has yet to fully disclose the details of the
package, which consists essentially of five measures focussing on
increasing domestic revenue and cutting down spending.

According to a government document leaked to the media earlier
this week, the budget revision includes a new exchange rate
assumption of Rp 9,600 per U.S. dollar, an inflation rate of 9.3
percent, economic growth of 3.5 percent, and the benchmark
interest rate of Bank Indonesia SBI promissory notes assumed at
15 percent.

Under existing budget assumptions, the exchange rate is set at
Rp 7,800 per dollar, inflation at 7.2 percent, economic growth at
5 percent and SBI rate at 11.5 percent.

The rupiah is now hovering around the Rp 12,000 per dollar
level, year-on-year inflation has reached around 10 percent
during the past couple of months, and the SBI rate is already at
16.09 percent.

According to the document, which reportedly has been prepared
solely by Rizal's office, the government has to come up with
additional funding of around Rp 39 trillion in order to check the
deficit at 3.7 percent of GDP.

The document says that around Rp 3 trillion would be generated
by raising tax and excise revenue, including income tax and
value-added tax; and another Rp 2.5 trillion from non-tax
revenues.

The government also plans to further reduce fuel and
electricity subsidies by around Rp 5.6 trillion, and save another
Rp 8.9 trillion by streamlining and refocusing development
spending.

Boosting the efficiency and effectiveness of fiscal
decentralization funds would also save a further Rp 7.9 trillion.

The government also plans to issue bonds and sell shares in
state enterprises to resource-rich provinces, generating around
Rp 5.2 trillion.

The document says that this would allow the government to
raise the proceeds target from the privatization program by
around Rp 2.2 trillion.

It adds that the remainder is expected to come from foreign
loans. (rei/dja)