IMF asks government to suspend large projects this year
JAKARTA (JP): The International Monetary Fund (IMF) has asked the government to shelve several large projects this year in a bid to rescue the troubled state budget, according to a source.
The source did not say which particular projects were suggested for cancellation, but he said that the IMF was concerned about the prospect of a greater-than-estimated deficit in the current state budget.
"The IMF wants the government to cancel several large projects financed by the state budget," the source said on Monday.
An IMF special mission is currently reviewing the country's economic condition and the implementation of several key economic reform programs.
One feature of the talks with the government is a plan to revise the 2001 state budget due to the unachievable nature of several assumptions, particularly amid the economic conditions of a weakening rupiah and rising interest rates.
The government recently admitted that the budget deficit this year could exceed more than 5 percent of gross domestic product, or equal to more than Rp 72 trillion (US$6.86 billion), compared to the initial projection of 3.7 percent of GDP, or Rp 52 trillion, if no measures were immediately taken.
The government will have to cut spending, particularly on large scale projects, to save the state budget because reducing routine expenditure such as government employee salaries would be politically impossible, while boosting domestic revenue from taxes and excise duties would be difficult amid the current economic difficulties.
Initially, the government planned to embark on several infrastructure projects this year in a bid to stimulate economic growth and create employment.
Some of the projects were canceled in 1997 when the economic crisis hit Indonesia, and also following recommendations by the IMF, which signed a multi-billion dollar economic bailout package with the Soeharto administration in power at that time.
Government spending was expected to be one of the driving forces to generate economic growth this year as investment and exports were unlikely to make a strong contribution amid the current political problems at home and economic slowdowns in the U.S. and Japan, the country's major traditional export markets.
Bank Indonesia recently predicted that the government's 5 percent GDP growth target this year could not be achieved due to the drop in the exchange rate of the rupiah against the U.S. dollar, domestic political trouble, and slowdowns in the U.S. and Japanese economies.
The IMF mission arrived last week for a two-week review, expected to be completed next Monday. The mission will then report to IMF headquarter in Washington before the fund decides on the disbursement of its next $400 million loan tranche to Indonesia, which was canceled late last year due to signs of the government backtracking on the implementation of several key economic reforms.
Director General of Financial Institutions Darmin Nasution said that a revision of the state budget was inevitable.
"It is certain that there will be a revision," Darmin said, but declined to provide more details.
The current state budget assumes an exchange rate of Rp 7,800 per U.S. dollar, and a Bank Indonesia SBI promissory note interest rate of 11.5 percent.
However, the rupiah fell to a 30-month low of around Rp 11,500 per dollar last month amid domestic political problems and a delay in the disbursement of the crucial IMF loan tranche. The drop in the rupiah has forced Bank Indonesia to allow the SBI rate to increase to 15.82 percent.(rei)