Plugging budget hole
Plugging budget hole
Securing the state budget is becoming more difficult at a time
when public spending has become the only locomotive expected to
fuel economic activities and offset the brunt of last year's 14
percent contraction in the economy. Capital inflow is virtually
nonexistent, at least until after the election and installment of
a new government later this year. Domestic investment is not
prospective, either, because the banking industry, which has
ceased lending since last year, will likely remain moribund until
the completion of its restructuring in June.
The 1999/2000 State Budget starting in April, although trimmed
to a bare-bones spending plan similar to the current one, will
have to finance more than 35 percent of its spending with foreign
loans because internal revenue has decreased sharply amid the
country's worst economic recession of the past 32 years. This
dependence may even increase should the internal income
projections, assessed by most analysts as too optimistic,
especially in regard to tax receipts and earnings from the sale
of state companies, fail to meet targets.
Japan's pledge of US$2.4 billion in new aid last week under
the Miyazawa Plan for five Asian countries is a great help to
meet state budget needs. But the shortfall remains big, though
the country's creditor consortium, the Consultative Group on
Indonesia (CGI), earlier pledged $4 billion in project aid.
Almost another $4 billion has yet to be secured in order to plug
the budget hole of $10.3 billion
But foreign borrowing is no longer as easy as the period of
robust economic growth enjoyed until 1996. As the country is
already saddled with more than $135 billion in foreign debt, more
than twice its annual exports, its credit rating, particularly
now in the tumultuous period of transition to a new
administration, is not viable to enable the government to tap the
financial market. Hence, government donors and multilateral
creditors, including the World Bank, Asian Development Bank and
International Monetary Fund, which are all grouped in CGI, are
the only source of foreign funds available to cover the budget
deficit.
A great amount of lobbying will be required to talk CGI
members into putting up additional aid to meet the remaining $4
billion shortfall at their next annual meeting in Paris in July,
one month after the general election. It is a tall order indeed,
despite the rapport Indonesia has nurtured with its creditors.
Only last September, sovereign members of CGI agreed to
reschedule up to 20 years $4.2 billion in principal payments on
past debts due in the current and next fiscal years.
There is no alternative for convincing creditors of the
legitimacy of Indonesia's plight and maintaining their sympathy
but for the government to fully take heed of the warning conveyed
at the CGI preliminary meeting in Jakarta last month. The
creditors reiterated that further aid to the country is
conditional to continued strong and realistic reform measures
despite the potential political mine fields ahead.
The message of caution is especially relevant in the run-up to
the June election when the government -- faced with the
potentially explosive interaction between social and political
developments -- is prone to act in short-term interests by
dispensing political goodies at the great expense of the long-
term good of the economy. There is also a great danger that the
government may slack off on key, painful reforms such as the
reduction of subsidies, the bank restructuring program and other
much-needed structural measures.
Though the creditors did not explicitly state it in their
advice, it is nonetheless imperative that the holding of the June
7 general election be successful, which translates into honest
and fair. The slightest doubt about the results could deprive the
nation of the international support it has enjoyed thus far.
Taxpayers, who after all foot the bill for their governments'
foreign aid, will be simply unwilling to help a government
installed through a questionable, not to say rigged, election.