New budget assumes Rp 6,500-7,500 rate

JAKARTA (JP): Indonesia's state budget for April-December 2000 will be based on the assumption of an exchange rate of Rp 6,500- Rp 7,500 to the U.S dollar and an international oil price of $16- 19 per barrel, according to finance minister Bambang Sudibyo.

Bambang said on Thursday the next budget would also assume an economic growth of between 2 and 3.5 percent, and an inflation level of between 4 to 6 percent.

"(But) several macroeconomic variables continue to change which makes it difficult to come up with an exact prediction. So the latest developments, both internally and externally, will affect the assumptions used in the 2000 state budget," he told the House of Representatives commission IX on the state budget and finance.

Indonesia's state budget has been traditionally a fiscal budget running from April to March, but starting next year it will be a calender year budget. The current budget ends in March 2000.

Bambang said the state budget would provide a stimulus for the economy, which plunged into a depression in 1998 with the gross domestic product contracting by more than 13 percent, inflation surging to more than 77 percent and the exchange rate of the rupiah plunging to as low as Rp 17,000 per dollar.

The economy started to recover this year with inflation expected to be checked at 2 percent and GDP to grow positively. The rupiah is currently hovering at around the Rp 7,200 level.

Bambang said that oil and gas revenues in the next budget were expected to reach Rp 37.4 trillion with an oil price assumption of $18 per barrel and an exchange rate of Rp 7,000 per dollar.

He said this consisted of Rp 8.8 trillion in oil and gas tax receipts and Rp 28.6 trillion in oil and gas revenue.

He said Indonesia's oil production, including condensate, in the budget year would be 1.46 million barrels per day, while gas output would be 1.42 trillion standard cubic feet.

The current state budget assumes an oil price of $10.5 per barrel, but the international oil price had started to move upward since the middle of last year and is currently hovering at around $25 per barrel.

Bambang said that crude oil imports would reach 71.2 million barrels costing Rp 9.69 trillion, while fuel imports would total 83.56 million barrels costing Rp 14.02 trillion.

Bambang also said that though the next state budget would still provide a stimulus to the economy, it would launch a first step toward creating fiscal sustainability by cutting deficit, reducing foreign borrowing and boosting domestic financing resources, including taxes.

He said that as part of the fiscal stimulus package, the government would raise the salaries of military and police personnel, the 6.5 million civil servants and retired government employees.

He said the percentage of the planned raise had yet to be determined in consultation with the House.

"But an increase of only 20 percent in pay would need an additional budget of Rp 5.34 trillion," Bambang said, conceding that such a rise would be way below expectation.

Several legislators proposed a 100 percent salary increase, which was immediately rejected by Bambang as beyond the budget's capacity.

He said that boosting salaries was part of the concerted effort to create a clean government and to improve the performance of the government employees and military and police personnel.

Bambang said that the government would start to reduce the amount of foreign borrowing in the next budget.

"The size and the requirements of the foreign borrowing are still being discussed with the donors but they will be smaller than the current fiscal year," he added.

Bambang added that the government would negotiate with the foreign donors about rescheduling the principal payments on some debts due next year to reduce the burden of the state budget.

He stressed that Indonesia would make a unilateral moratorium on debt payments because such a move would risk a complete halt to the inflow of sorely-needed foreign capital to resolve the economic crisis and stabilize the rupiah.

Bambang said that one option was to ask for debt rescheduling with the Paris Club creditor nations.

He added that debt rescheduling would also be negotiated with commercial lenders grouped under the so-called London Club in its bid to reschedule the overall foreign debts.

"Based on the non-discrimination principle, debt rescheduling with non-Paris Club sovereign creditors will be negotiated in parallel with the rescheduling of government commercial debts through the London Club," Bambang said.

He put the country's debt service ratio (DSR) at 47 percent (of total exports) in the 2000 budget year, which would be lower than the 54 percent level in the current 1999/2000 state budget.

"Corporate debt servicing will contribute 34 percentage points to the DSR and government debts the remaining 13 percentage points," Bambang said.

Net capital flow during the 2000 budget year is expected to remain in deficit, but at a lower level, compared to the estimated $7.6 billion in the current 1999/2000 fiscal year.

He attributed the smaller capital-account deficit to lower capital outflow and higher capital inflow through foreign direct and portfolio investment. (rei)