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

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)