Mega to unveil budget draft on Friday

By Kanis Dursin

JAKARTA (JP): President Megawati Soekarnoputri is expected to unveil the 2002 state budget draft on Friday, which is likely to have little impact in stimulating economic growth.

Economists said that a relatively large amount of the budget would be allocated for servicing public debts, and little to financing development programs.

"The budget might be expansive but it will not stimulate economic growth since much of the funds will be used to finance routine expenditures such as paying the interest on bonds issued to recapitalize the country's ailing banking sector and servicing the interest on sovereign debts," economist Bustanul Arifin of the Institute for Development of Economics and Finance (Indef) told The Jakarta Post Wednesday.

Megawati will present the draft of the January-December 2002 budget at a plenary session of the House of Representatives.

So far there has not been much information about the draft budget. But according to data gleaned from various sources, the economic assumptions used in the budget will include an economic growth target of 4.8 percent to 5 percent, inflation of 8 percent to 9 percent, average exchange rate of Rp 8,000 to Rp 9,000 per U.S. dollar, oil prices of between US$22 and $23 per barrel, and a budget deficit of 2 percent to 3 percent of gross domestic product.

Economists said that the budget would still have to rely on foreign assistance to help finance the deficit as well as to ease the huge burden of sovereign debt payments.

"We have no choice but to borrow foreign funds to finance the state budget," economist Pande Raja Silalahi of the Centre for Strategic and International Studies (CSIS).

The government is scheduled to meet with the country's traditional lenders grouped in the so-called Consultative Group on Indonesia (CGI) in November.

Last year, the CGI provided the country with some $4.8 billion in loans to help finance the current state budget.

The government is also scheduled to meet with the Paris Club of creditor nations early next week in a bid to secure agreement for the rescheduling of some $2.8 billion of debt maturing between this year and next year.

A senior official of the Coordinating Ministry for the Economy earlier also said that at the upcoming Paris Club meeting, the government would try to persuade the creditors to provide the country with another rescheduling facility for some $6 billion in sovereign debt maturing between 2002 and 2004.

But all this will depend on whether the administration of Megawati can win the hearts of the foreign creditors, particularly the International Monetary Fund, the World Bank, Asian Development Bank, and Japan.

The IMF is expected to decide on whether to support the Megawati government later this week before the Paris Club gathering.

The Megawati government must also convince other donors that it is committed to implementing the economic reform agenda, including good corporate governance and the acceleration of state assets disposal.

Economists said that the government would also have to further reduce fuel subsidy by an average of 30 percent to help ease the budget burden.

"It is not a matter of whether or not the government can reduce subsidies. It has to (cut subsidies), but it should do so slowly to avoid undesired impacts," Pande said.

Reducing fuel subsidies has been a politically-sensitive issue in the country. The downfall of former president Soeharto in 1998 was partly the result of his government's decision to raise fuel prices.

Meanwhile, a source familiar with the draft budget preparation told The Jakarta Post that the budget would give greater importance to education, agriculture and infrastructure.

"This bodes well for the government's plan to create more job opportunities in 2002," the source said.