Megawati unveils 2001 draft budget

Megawati unveils 2001 draft budget

JAKARTA (JP): Vice President Megawati Soekarnoputri unveiled
on Monday the draft 2001 state budget which will be unlikely to
provide any stimulus to the economy because quite a large portion
of the spending will go on servicing government debt and
financing subsidies.

The budget envisages state revenues at Rp 243 trillion
(US$27.93 billion) and total spending at Rp 295.1 trillion,
resulting in an estimated deficit of Rp 52.1 trillion or 3.7
percent of gross domestic product (GDP).

"This deficit will be financed both from domestic and foreign
sources," President Abddurrahman Wahid said in a budget address
read out by Megawati at a plenary session of the House of
Representatives chaired by Speaker Akbar Tandjung.

President Abdurrahman Wahid is away on a state visit to
several Latin American countries.

The January-December 2001 budget will be the country's first
calendar-year budget. The current April-December 2000 budget is a
transitional one from the previous fiscal years that ran from
April 1 to March 31.

The budget assumes economic growth of 4.5 percent, an average
rupiah exchange rate of Rp 7,300 to the dollar compared to Rp
8,700 now, inflation of 7 percent, an average oil price of $22
per barrel compared to $33 now, and Bank Indonesia's benchmark
interest rate at 11 percent as against 13.60 percent today.

The President said that despite the severe budget constraints,
the government was trying to improve the welfare of government
employees.

"The step to be taken is improving the salary system, namely
to integrate all income supports into the main salary," he added.

However, the juggling of the salary and allowance components
does not seem to make any difference to the take-home pay of
government personnel.

In fact, if the personnel expenditure in the current nine-
month budget is annualized and the whole-year spending is
compared to the Rp 39.89 trillion personnel spending budgeted for
next year, the end result is a decline even in nominal terms, let
alone in real terms (adjusted for 7 percent inflation this year).

Abddurrahman said that Rp 32 trillion of the fiscal deficit
would be covered with the proceeds from the sales of state
companies and asset recovery by the Indonesian Bank Restructuring
Agency (IBRA) and the other Rp 20.1 trillion with new foreign
loan disbursements.

The government is scheduled to meet with the country's
traditional donors grouped in the Consultative Group on Indonesia
(CGI) in Tokyo on Oct. 17-18 to seek some $4.8 billion in loans.

Domestic tax receipts will contribute Rp 163.4 trillion or 67
percent of total revenues with the bulk of them expected to come
from income tax and value added tax.

The spending plan reflects the huge debt burden, as can be
seen in the Rp 55.8 trillion, or 4 percent of GDP, appropriated
for the interest costs of treasury bonds and Rp 21.6 trillion for
servicing foreign debts.

As the bulk of revenue has to be used for recurrent (routine)
spending, only Rp 33.36 trillion or 11.3 percent of the total
spending will be available for public-sector investment in basic
infrastructure.

"More than Rp 74 trillion or around a quarter of the total
spending will be allocated to provincial and district
administrations to help them implement their new political and
economic powers," the President said.

The government will begin implementing the regional autonomy
and fiscal decentralization policy in January.

Chief economics minister Rizal Ramli told a media briefing on
the budget on Sunday evening that the regional autonomy policy
was crucial to help prevent the country from disintegrating.

The government expects the economy to grow by 4.5 percent next
year, compared to an estimated 3.8 percent for this year.

"For 2001 ... it is to be hoped that private investment will
be able to become the driving force (for economic growth)
together with exports and consumption," Abddurrahman said.

"By setting up investment and exports as the main driving
forces of the economy, it is expected that the process of
Indonesian economic recovery will be faster and remain
sustainable," he added.

The government said an average exchange rate of Rp 7,300 to
the dollar was possibly achievable through various effective
policies in the monetary and real sectors as well as by
continuously improving co-ordination and synchronization between
Bank Indonesia as the monetary authority and the government as
the fiscal authority.

The rupiah is currently hovering at around Rp 8,775 per
dollar.

"With a stable rupiah exchange rate ... the inflation rate
will be controllable at around 7 percent while interest rates (on
Bank Indonesia one-month SBI promissory notes) will be maintained
at around 11 percent," Abddurrahman added.

Inflation this year is expected to surpass the government
target of 5-7 percent due to the 9.25 percent rise in fuel prices
as from Sunday.

The budget allocates Rp 36.39 trillion for fuel subsidies and
Rp 11.87 trillion for other subsidies, including those for rice,
agricultural credit programs and electricity.

The financial notes attached to the budgetary address say that
the fuel subsidy estimate for next year assumes another fuel
price increase of 20 percent next April.

The price increase is part of the effort to reduce the budget
burden and to eventually phase out fuel subsidies by 2004.(rei)