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. _______