New budget 'shows inept crisis handling'

JAKARTA (JP): The new 1998/1999 State Budget is one indication of the government's ineptness in bringing the country out of economic turmoil, according to economists.

Pande Raja Silalahi, an economist at the Center for Strategic and International Studies (CSIS), said he was concerned that the government had been too rash in deciding to depend on international loans for financing the largest part of the budget when there was the potential of raising more revenue through taxes.

"The non-oil and gas revenue figure indicates that the government is too pessimistic," he said, adding that the tax revenue target should be higher.

He said over the weekend that more revenue could be collected following the discontinuation of value-added tax and import tax privileges for electricity power producers, taxi importers, animal-feed producers and the Timor national car manufacturer.

Timor is the controversial car project controlled by former president Soeharto's youngest son Hutomo Mandala Putra.

Pande added that the recent hike in crude palm oil (CPO) export tax would also provide more revenue.

The government announced last week the second revision of the 1998/1999 budget to accommodate further deterioration in the economy and a huge subsidy commitment to help the poor in surviving the country's worst economic crisis in three decades.

The budget was first revised in January.

The total budget has been expanded to Rp 227.14 trillion, an 88.24 percent increase from January's Rp 147.22 trillion. Incoming foreign aid has been boosted to Rp 127.80 trillion from Rp 32.25 trillion. In comparison, tax revenue projections are little changed at Rp 72.90 trillion.

Finance Minister Bambang Subianto said the government would use "force" to achieve the tax revenue target amid difficulties faced by the business sector in the wake of the year-long crisis.

He pointed out that the tax office would issue distress warrants -- allowing the seizure of goods of delinquent taxpayers to satisfy tax claims.

Didik J. Rachbini, an economist at the Institute for the Development of Economics and Finance (Indef), criticized the government for heavily depending on advice given by the International Monetary Fund without having an alternative plan if the IMF's counsel on managing the crisis proved ineffective.

He pointed out that the second revision of the rupiah's exchange rate assumption in the budget showed the new government's unskillful way in dealing with the crisis.

"It's just like we're in a soap opera directed by the IMF. The government should not surrender every time the currency market puts pressure on the rupiah. The market is immoral," he said.

The exchange rate of the rupiah against the U.S. dollar under the new budget was set at Rp 10,600 to the dollar, compared to Rp 5,000 in the first revision and Rp 4,000 in the original budget draft.

The rupiah has dropped to the Rp 13,000 level now, from Rp 2,450 last July before the crisis.

Didik also criticized the large allocation for debt repayments amounting to Rp 94.50 trillion, compared to only Rp 15.71 trillion for the basic foods subsidy.

"At a time when our people are hungry and losing jobs, it's absurd," he said.

He urged the government to temporarily halt servicing the country's foreign debts, both interest and principal, especially on foreign debt used to finance unfeasible projects.

"If international donors don't accept this proposal, they should be branded as immoral as well," he said.

Coordinating Minister for Economic, Finance and Industry Ginandjar Kartasasmita said last week that the government planned to reschedule its debts by postponing payments on the principal but continuing to pay the interest.

Former Bank Indonesia director I Nyoman Moena supported such a plan, but stressed that the government must also persuade multilateral donors to provide Indonesia with soft loans to finance the budget.

He said the country would have to rely heavily on foreign loans to finance the huge deficit in the budget of between $10 billion and $11 billion.

"We can't expect much from the business sector. And I don't think we should put any further tax burden on the business sector which is currently trying to survive the crisis and keep people employed," he said.

He also said there was a possibility that the budget would be revised again if the economy deteriorates further.

"So it is important for international loan commitments to be realized soon. If they're postponed, we will need even more loans to get out of the crisis," he said. (rei)