Praise and criticism for draft state budget

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)