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)