IMF says RI budget should be expanded

IMF says RI budget should be expanded

JAKARTA (JP): Indonesia's revised state budget agreed with the
International Monetary Fund (IMF) in January has to be expanded
further to accommodate bigger spending on social welfare
programs, IMF Asia Pacific director Hubert Neiss said yesterday.

Speaking to journalists after a luncheon with President B.J.
Habibie and economic ministers at the State Guest House, Neiss
said the budget had suffered a large deficit as a result of
swelling expenditure.

"We have to accommodate a larger amount of expenditure for
socially related purposes, not only for subsidies but also for
medical purposes and education.

"And we have to deal with the problems of a larger deficit
which if it gets too large and out of hand, ... results in higher
inflation."

Neiss projected that the revenue side of the budget would be
smaller than previously assumed because of the deepening
recession.

The current budget, balanced by law, is set at Rp 147.22
trillion (US$12.2 billion). This is a nominal increase of 45.6
percent over the 1997/1998 budget ending March 31.

Neiss, who arrived Wednesday afternoon, is expected to be in
the capital for three weeks. He is leading an IMF technical team
reviewing the country's economic reform programs before the IMF
board of directors makes a decision whether to disburse another
US$1 billion of the $10 billion bailout money committed by the
fund for Indonesia.

Indonesia has already received $4 billion from the IMF.

In addition to the budget, Neiss is going to review
macroeconomic assumptions, monetary policy and financial
restructuring.

Based on macroeconomic assumptions revised last April,
Indonesia's economic growth was projected to contract 4 percent
this year, inflation to rise 45 percent and the rupiah to
stabilize at Rp 6,000 per U.S. dollar.

However, the Central Bureau of Statistics projected recently
that gross domestic product would contract 10 percent and
inflation would rise 80 percent. The rupiah is currently being
traded at less than 13,500 against the dollar.

Neiss said a revision of macroeconomic assumptions was needed
to reflect reality following the political unrest in May which
led to the resignation of former president Soeharto.

Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita, who attended the luncheon, said he was
optimistic the IMF would disburse the next $1 billion standby
loan facility to Indonesia in July.

The disbursement was initially scheduled for June 4 but was
delayed following the political turmoil last month.

Mar'ie

Separately, former finance minister Mar'ie Muhammad said the
IMF must speed up its aid disbursement to Indonesia because the
country had implemented the sweeping economic reform programs
faster than scheduled.

"I strongly urge the IMF and other donor institutions to speed
up the disbursement of their aid commitments," he told
journalists yesterday during a discussion.

He also said that since most of the reform programs had been
agreed and implemented, reviewing the macroeconomic assumption
figures should not take long.

The IMF promised the country in November that it would
provided $10 billion of the total $43 billion organized to back
up the economic reform programs.

It was initially agreed to disburse the bailout money in $3
billion tranches, to make sure that the country remains committed
to the agreed reforms.

Indonesia received the first installment of $3 billion in
November, but the second disbursement of $3 billion was delayed
and divided into three monthly installments, each amounting to $1
billion, following a failed attempt by the government to
implement the promised reforms. The second $1 billion payment,
due this month, will likely be made only next month.

Mar'ie said that disbursing $1 billion in the current
situation would not help much in boosting confidence in the
crisis-hit country.

"If Indonesia fails to solve its crisis, this will spread to
other countries in the region," he said.

Mar'ie said the privatization of 12 state companies became
more important now to raise Rp 15 trillion (US$1.15 billion) to
support the budget.

He also said the government must quickly move to raise its
nontax revenue, especially the non-budgetary cash-pool managed by
ministries and state agencies, to help relieve the bleeding state
budget.

Although he declined to disclose the total figure of the
nontax revenue, Mar'ie said: "Believe me, it is quite large."

Although the cash pool was still being audited by the state
comptroller agency (BPKP), Mar'ie said, it would be best if the
money could be directly used to finance the current budget.

To satisfy the agreement with the IMF, the non-budgetary funds
have to be aligned in the budget to make sure of the transparent
use of the money.

The non-budgetary cash-pool includes the so-called
reforestation fund and the state social security fund.

The reforestation fund, introduced by former president
Soeharto in 1990, has been collected from forest concessionaires.
The use and the amount of the fund, however, is not made public.

Between 1996 and 1997 alone, more than Rp 2 trillion was
collected, while for the 1998/1999 fiscal year, the target is Rp
1.6 trillion.

The state social security fund, managed by the Ministry of
Manpower, is similarly untransparent. The total amount is
believed to be more than Rp 6 trillion. (rei/prb)