Mega to unveil 2004 budget, key reform program today

Mega to unveil 2004 budget, key reform program today

The Jakarta Post, Jakarta

President Megawati Soekarnoputri will unveil the 2004 draft state
budget and the government's post-IMF economic reform program in a
state of the nation speech at the House of Representatives today.

This will be a closely followed event as next year will mark a
turning point for the country as it is due to hold its first ever
direct presidential election, and the economy will once again be
on its own after having emerged from an International Monetary
Fund bailout program.

Many analysts expect that Megawati will outline a credible
keynote economic reform program in a bid to maintain investor
confidence in the economy after the current IMF program ends
later this year.

Government officials said earlier that the post-IMF economic
program, to be detailed in a white paper, would basically contain
a set of economic measures focussing on macroeconomic stability,
corporate restructuring, financial reform and measures to boost
exports and investment.

The IMF began providing bailout funds to Indonesia in the wake
of the 1997 Asian financial crisis. The termination of the IMF
program will mean that the country will no longer be able to
obtain debt rescheduling facilities from the Paris Club of
creditor nations.

This could create risks for next year's state budget unless
the government can secure other financing sources.

According to government estimates, it will have to raise
around Rp 84 trillion (about US$10 billion) in cash to close next
year's fiscal gap resulting from the budget deficit and the
repayment of both foreign and domestic debts.

The government plans to raise funds from the country's
traditional lenders grouped in the Consultative Group on
Indonesia (which will convene in October), sales of government
assets and shares in state-owned companies, and to tap funds on
the international markets by issuing some $400 million worth of
bonds, probably early next year.

But these will all require efforts by the government to
maintain investor confidence in the economy through such measures
as reassuring the markets that the country is committed to
pushing ahead with tough economic reforms.

The 2004 draft state budget is likely to pencil in a lower
deficit of 1 percent of gross domestic product, compared to the
1.8 percent of GDP estimated for this year's budget. This would
mean the need for further spending cuts.

Other economic assumptions employed in the budget may include
an economic growth target of up to 5 percent, 6-8 percent
inflation, a rupiah exchange rate of Rp 8,200-9,200 per U.S.
dollar, and a Bank Indonesia three-month interest rate of 9-10
percent.

During the past six months of the year, the country has seen
positive improvements in all of these macroeconomic indicators as
reflected in the rapid appreciation of the rupiah, benign
inflation, and lower Bank Indonesia interest rates. Foreign money
has also started to return with the stock market rallying since
the beginning of the year.