Prijadi seeks House support to keep budget credibility

JAKARTA (JP): Minister of Finance Prijadi Praptosuhardjo has asked the House of Representatives for political support to maintain the credibility of the 2001 state budget.

Prijadi said on Tuesday that a credible fiscal policy would help revive the confidence of the business sector and the financial market, a crucial element in achieving economic recovery.

"Based on experience implementing the 2000 state budget, development on the economic, social and political fronts can cause a policy that has been approved by the House, such as the plan to raise fuel prices, cannot be realized," he told legislators during a plenary session to approve next year's state budget.

"The government is asking all parties, particularly the support of the House, to maintain the credibility of the (government) fiscal policy," he added.

The government initially planned to raise fuel prices by about 20 percent in April 2000, as demanded by the International Monetary Fund (IMF), but due to strong political opposition, the plan was delayed until October and lowered to 12 percent.

The IMF is providing the current administration with about US$5 billion in bailout cash to help finance the country's three- year economic reform program.

Fuel is a politically sensitive commodity for this country, which has a population of over 200 million. The increase in fuel prices in 1998 helped topple former president Soeharto.

The government will gradually reduce the fuel subsidy, raising the price of the heavily subsidized commodity, to help reduce the burden of the state budget and create an efficient economy.

The government is planning another increase in fuel prices of about 20 percent in April.

Prijadi also asked the House to help maintain political stability as a precondition for the market to respond positively to the government economic policy, including the fiscal policy.

He said that during the past three years, investors had yet to make a positive response to government economic policies, partly due to the absence of political stability, security and legal certainty.

"Without a conducive environment, the economic growth target of 5 percent (for 2001), which is expected to come from investment activity and exports, will be difficult to achieve," he said.

President Abdurrahman Wahid has come under strong attack from certain groups in the legislature over his alleged involvement in a financial scandal that may lead to his impeachment. The rupiah has been seriously affected by this political development.

The House approved on Tuesday the 2001 state budget, which runs from January to December.

The budget has seen some changes compared to the first draft proposed by the government in October after it was debated by the House special team.

The assumptions in the 2001 state budget are as follows: the exchange rate of the rupiah is set at Rp 7,800 to the U.S. dollar; inflation at 7.2 percent; economic growth at 5 percent; the oil price at $24 per barrel; and the interest rate of Bank Indonesia SBI promissory notes at 11.5 percent.

The total revenue of the 2001 state budget is set at Rp 315.76 trillion ($40.48 billion), with a budget deficit of about Rp 52.53 trillion, or equal to about 3.7 percent of the gross domestic product (GDP).

The deficit will be financed by foreign loans, privatization proceeds of about Rp 6.5 trillion and proceeds from the sale of assets under the Indonesian Bank Restructuring Agency (IBRA) set at Rp 27 trillion.

The 2001 state budget will still be heavily burdened by the huge cost of the country's bank recapitalization program. The government has raised about Rp 650 trillion worth of bonds to finance the program, and the interest cost of the bonds that must be covered by the state budget is estimated at Rp 53.46 trillion next year.

Separately, Prijadi also reported to the House budget committee that the various assumptions and target set in the 2000 state budget were either beyond or below projection.

He said this was due to the weakening of the rupiah's exchange rate and the higher oil price.

Prijadi said the realized assumption figures in the nine-month 2000 state budget ending in December were as follows: the actual exchange rate of the rupiah was at an average of Rp 8,292 to the dollar (versus the budget figure of Rp 7,000); the average oil price was $29.05 per barrel ($20 per barrel); economic growth of 4.5 percent (3.8 percent); inflation of 7 percent (4.8 percent); and interest rate of 12.6 percent (11.6 percent).

He also said the 2000 budget deficit was estimated at 3.2 percent of the gross domestic product compared to the projection of 4.8 percent of GDP. (rei)