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)