Preparing the 2005 budget

Preparing the 2005 budget

The economists grouped in the Indonesia Rises, or Indonesia
Bangkit, forum are right to assert that the current government
and House of Representatives do not have the political mandate to
legislate the 2005 state budget.

The state budget is the most important government tool in
implementing fiscal policies, which detail the funds the
government allocates toward the provision of public goods and
services and the way in which the government finances
expenditures. Fiscal and monetary policies are, in turn, the most
important government instrument to influence the economy.

It is thus the political and constitutional right and the
responsibility of those House members and the president mandated
by the people through this year's elections to adopt the 2005
state budget.

In fact, the performance and credibility of the new government
and House will be judged primarily by the 2005 budget, which will
determine the allocation and redistribution of resources from one
area to another, and from the rich to the poor. On the financing
side, the state budget will guide taxation policies and public
borrowing on either the domestic or foreign market.

Formulating the state budget is therefore a vital process, not
only of determining expenditures and revenues, but also of
setting development priorities, the developmental aims of
agriculture and manufacture, and other politico-economic measures
to implement the government's economic vision.

The 2005 budget is thus too strategic a policy to be left to
the present government to prepare. The new House and government
should have the full responsibility and control in making the
budget, as the 2005 budget will be the first real test of the new
government in actualizing its electoral promises to the people.

The problem though is that the election schedule -- early
April for the legislative election and early July for the
presidential election, with a second round in September -- is too
close to the end of the year for the new House and government to
draw up the 2005 state budget that shall be effective on Jan.1.

Since the House installed by the April 5 general elections
will only start working in early October, the new president and
vice president are to be inaugurated on Oct. 20 and the new
Cabinet in early November, there is simply no time for the new
House and government to undertake meaningful deliberations on a
new budget if the process starts from scratch.

Moreover, Law No. 17/2002 on state finances requires that the
state budget be approved by the House in November to give at
least two months for provincial and regional governments to
prepare their respective budgets.

Given these time constraints, the current government plans to
move up deliberations of the new budget from August to May, so
that by the time the new government comes to power in early
November, it will already have a draft state budget that only
needs fine-tuning.

We do not agree with the Indonesia Bangkit economists' view
that the early deliberations of the 2005 budget is an act to
usurp the authority and political mandate of the new House and
government; nor does their demand that the government cancel its
plan to draft the 2005 budget make any sense.

The plan is simply good will on the part of the present
government to assist the new government in gearing up for its
first major tasks and to make the transition smooth. The present
government seems intent only on preparing a draft budget -- which
is nevertheless subject to revisions by the new government and as
such, there appears to be no indications that it seeks to advance
its own agenda in the 2005 budget.

It is certainly difficult to prepare a budget months ahead of
the formation of the new government, because many assumptions for
key economic indicators -- such as the rupiah exchange rate and
inflation and interest rates -- to a large extent depend on how
the market will perceive the credibility of the new government.

However, it would help establish confidence in the new
government if the 2005 state budget is drafted upon the basis of
current fiscal policies, which have thus far contributed greatly
to strengthening macroeconomic stability.

In fact, there does not appear to be other alternative fiscal
policies for the new government to sustain market confidence but
to continue the current ones, which are designed to reduce the
budget deficit and government debts steadily, to reform the
national tax system and increase the efficiency of expenditures.
_______