Key economic challenges outlined for new government

Key economic challenges outlined for new government

JAKARTA (JP): State Minister of National Development Planning
Boediono said on Wednesday the next government would encounter
severely strained budget resources, emphasizing that foreign debt
rescheduling measures would be imperative.

Boediono said restricted government finances was one of the
critical challenges the new government would inherit from the
present administration.

"The other most pressing problems are a devastated banking
system, a highly indebted corporate sector, neglected
infrastructures and greater demand for social safety net
programs," he told the opening session of a two-day conference
titled The economic issues facing the new government.

Boediono said the huge cost of bank restructuring, debt
servicing burdens, consumer subsidies, the fiscal impact of
decentralization of administration, civil service reform and
decreasing foreign aid would put intense pressure on the state
budget.

"Another foreign debt rescheduling of at least US$3 billion is
therefore most imperative."

The conference at the Shangri-La Hotel is organized jointly by
the Institute of Economic and Social Research of the School of
Economics, University of Indonesia, the United States Agency for
International Development and the Partnership for Economic
Growth.

The meeting, which features prominent Indonesian and American
economists as well as economists from leading political parties,
is also a forum for vigorous discussions among economic advisors
and policy makers and those set to play a prominent role in the
new government.

Boediono did not elaborate on the economic challenges in
quantitative terms, emphasizing instead the qualitative extent of
the problems facing the new government, which is expected to be
formed in December after the presidential election in November.

Debt service burdens alone will be monstrously huge, not only
due to the steep rise in foreign debts, but also because of the
government's domestic borrowings through the issuance of treasury
bonds.

Minister of Finance Bambang Subianto estimated late last month
that interest payments on more than Rp 600 trillion ($77 billion)
in treasury bonds issued to finance the bank restructuring and
recapitalization program, as well as the government guarantee
scheme for the banking industry, would be massive.

Bambang estimated interest payments on the bonds at about Rp
62 trillion in the coming fiscal year starting in March, a
considerable increase from Rp 40 trillion in the current year.

Boediono said serious attention must be given to the
maintenance of infrastructures. He said such maintenance appeared
to have been largely neglected because the government had been
forced to meet contingency programs to cope with the crippling
economic crisis.

"Poor infrastructures could damage the potential for new
growth," Boediono warned.

He predicted implementation of a more intensive program to
collect taxes to offset the anticipated decrease in foreign
loans. (vin/rei)