No fiscal stimulus for 2004: Boediono

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.