No fiscal stimulus for 2004: Boediono

Dadan Wijaksana, The Jakarta Post, Jakarta

The government said on Monday it could no longer afford to provide a fiscal stimulus to the business sector next year due to limited budget capacity.

Minister of Finance Boediono said that the 2004 state budget would be greatly burdened by payments of maturing domestic and foreign debts, while proceeds from the sale of state assets were expected to decline.

He also said that the government was determined to cut the budget deficit to a safe level of 1 percent of gross domestic product (GDP), which meant that the government would have to limit spending and boost domestic revenue from taxes. In comparison, the deficit for this year's budget is estimated to be 1.8 percent of GDP.

"It (fiscal stimulus) can be resorted to if the situation is normal. But at present, we've yet to fully recover," Boediono said, adding that the government was also determined to cut the debt-to-GDP ratio to around 60 percent next year from the current 67 percent. Two years ago, the ratio was 100 percent.

Boediono was speaking on the sidelines of a national gathering on economic development held by the National Development Planning Agency.

Boediono said the tight 2004 budget was in part due to the country's plan to leave the existing International Monetary Fund (IMF) program later this year.

While the absence of debt facilities from foreign creditors under the Paris Club would no longer be available as a result, termination of the IMF program could also mean Indonesia had to allocate a huge sum to repay its debts to the IMF.

Under these conditions, rather than providing such a stimulus, Boediono preferred instead to improve the country's overall business environment.

"The best stimulus of all is to create a positive climate for business players in which to invest," he said, without elaborating.

He said, however, that the government could consider not raising tax rates next year in order to help businesses.

For this year, the government has so far introduced a number of stimuli to help the economy and meet rising calls from local industry.

First, in a bid to help weather the economic impact of the devastating bomb attacks in Bali last year, some Rp 10 trillion has been added to the 2003 state budget's allocation for development expenditure.

A stimulus in the form of tax-break facilities for certain industries was also introduced.

In January, the government eliminated luxury taxes on certain electronic products and cut the rate for other electronic products. Apart from easing the burden on electronics goods manufacturers, the policy was aimed at assisting them to better compete with cheaper, smuggled products.

The last stimulus was introduced in May, under which the government waived 10 percent value-added tax (VAT) on the import of certain capital goods and raw materials by several industrial sectors.

The policy allows the revocation of VAT on the import of capital goods such as machinery and factory equipment, as well as raw materials for the agricultural, fishery, forestry and animal husbandry sectors.

Despite those steps however -- which have cost the state budget dear -- calls for further tax-break facilities keep coming from businesspeople.

They have long complained that domestic companies, especially export-oriented ones, faced difficulties in competing head-on in the international market with competitors from China and other countries, which are regarded as more efficient.