Praise and criticism for draft state budget

JAKARTA (JP): The nine-month state budget unveiled by the government on Thursday received mixed reactions from legislators and economic observers.

Many economists and legislators described the draft budget, which will be effective from April to December, as realistic, while many others doubted whether the economic targets could be achieved.

House of Representatives speaker Akbar Tandjung said the proposed state budget was sufficiently realistic about restoring Indonesia's ailing economy despite some shortcomings.

"We have some worries about the economic assumptions, but hopefully we can achieve them," he told reporters after the budget's unveiling by Vice President Megawati Soekarnoputri before the House of Representatives.

The former close aid of former president Soeharto said that he saw no imminent problem for the House to approve the draft budget, which would be deliberated beginning Jan. 27.

The 2000 fiscal draft budget assumes a 3.8 economic growth rate, with inflation reaching 4.7 percent and an exchange rate of against the U.S. dollar of Rp 7,000. The price reference in calculating export earnings from oil exports is set at US$18 per barrel, far higher than the $10.5 per barrel in the current budget.

The proposed budget forecasts a deficit of Rp 45.37 trillion (US$6.1 billion), with spending predicted to reach Rp 183 trillion compared to Rp 137.6 trillion in total state revenues.

Asked about a proposed 20 percent hike in civil servant salaries, Akbar said he agreed, but added the government should prioritize an increase in salary for lower-ranked civil servants.

Legislator Paskah Suzetta of the House's Commission IX, which oversees budget and banking, said that the economic growth target was too high.

"With an 80 percent allocation on routine spending, how do we expect to speed up economic recovery?" he asked.

He said this composition would mean that the assumptions of a 3.8 percent growth rate, a 4.7 percent inflation rate and a Rp 7,000 level against the U.S. dollar would become unreachable.

The draft budget allocated Rp 143 trillion in routine spending or about 80 percent of its total spending, whereas the share for project developments was only Rp 39.3 trillion.

He said allocating 80 percent on routine spending would only increase domestic consumption without stimulating investments for export oriented products.

Reasonable

David Chang, senior analyst at Trimegah Securities described the draft budget as conservative, saying the assumptions used in the draft were quite reasonable.

"The budget is within the expectations of the financial market," David said, citing that the market was positive with reports of gains for the Jakarta Stock Exchange and the rupiah.

He said he was confident that Indonesia would be able to obtain a 3.8 percent growth rate given that the rupiah-U.S. dollar exchange rate should remain stable at the 7,000 level.

David said the proposed budget was too small to stimulate the economy but he was optimistic that an increase in new investments would enable the government to achieve its economic growth targets.

He said that the government's strong commitment to root out corruption and to improve transparency would attract new investors into the country.

But he warned that optimism for new direct investment flows depended much on the country's political stability.

Economist Pande Radja Silalahi hailed the transparency of the proposed state budget.

"The current budget format reflected international standards, whereas previous formats had ignored the fact that their budgets were deficit," Pande was reported as saying.

The government had decided to adopt a table form for the budget's format, thereby allowing for better control and transparency over the use of state budget funds.

He said the government was acting conservatively as it began to reduce its reliance on foreign debts.

Commenting on the economic assumptions for this year's draft budget, Pande said they showed that the government was optimistic.

"It's possible that all macroeconomic indicators, like growth and inflation, could be achieved. The point is that growth doesn't depend on investment but more on the consumption level," he said in reference to the government's low spending level in this budget.

Economist Tony A. Prasetyantono from the University of Gadjah Mada said the draft budget was more realistic with the government's courage to call it a "deficit budget."

He, however, said that the government's economic growth target of 3.8 percent was too high, saying the ideal level should be about 3 percent.

He further cautioned the government for setting the assumed inflation rate too close to the central bank's own prediction of 3 percent to 5 percent.

"This figure would only make sense under a monetary view, under which Bank Indonesia is more independent in circulating money," he said, adding that the bank had neglected the fact that money was not the only factor affecting the inflation rate.

Former finance minister Fuad Bawazier said an economic growth rate of between 2.5 and 3 percent would be more realistic.

But he supported the government's focus on routine spending instead of on infrastructure development, as the latter would become a source of corruption, collusion and nepotism practices. (03/44)