RI pledges to cut spending, optimize tax collection

RI pledges to cut spending, optimize tax collection

CHIANG MAI, Thailand (DPA): In the face of mounting public
debt, Indonesia plans to rein in budget spending on large-scale
civil projects this year while improving its tax collection,
Indonesian Finance Minister Bambang Sudibyo said on Sunday.

Sudibyo said Indonesia's official foreign debt had reached
US$75.9 billion this year, with private sector debt at $72.2
billion.

Indonesia hopes to reduce public debt from a whopping 1,000
percent of gross domestic product (GDP) to 65 percent of GDP by
the year 2004, said the finance minister.

Addressing a seminar on Indonesia's economic recovery at the
Asian Development Bank's annual board of governors' meeting,
Sudibyo said his government faced a tough balancing act between
promoting economic growth while trying to stem the mounting
public debt.

To do so, Indonesia's Finance Ministry will pursue a
restructuring of the taxation system, by doing away with existing
exemptions and tax holidays and improving collection.

While Bambang told the ADB meeting that "the crisis in
Indonesia had bottomed out," with the economy expected to achieve
3.8 percent growth in 2000, he noted that budget constraints were
now necessary in light of the country's mounting public debt.

Debt servicing is expected to account for 19 percent of
Indonesia's total public expenditure this year, he said.

"The rate of repayment prevents the government from
undertaking large civil projects," said Bambang, who added that
in the near future the government would need to concentrate on
smaller, employment-creating projects.

Indonesian financial and monetary authorities acknowledged
that if privatization plans via the Indonesian Bank Restructuring
Agency (IBRA) failed to raise an anticipated $2.7 billion in
revenues, the government would be hard pressed to backtrack on
its constrained budget spending.

A quick inflow of foreign investment was not anticipated, as a
means of boosting employment and economic recovery.

"Over-capacity is still there, so there is no need to increase
investment at this time," said Sjahril Sabirin, Governor of the
Bank of Indonesia, at the same seminar.

Lending

In a related development, The U.S. is calling on the ADB to
tighten its lending and management controls, adding that denying
the bank new capital won't jeopardize its financial soundness.

The bank's effort to raise more capital "distracts us from
other near-term priorities," Edwin Truman, an assistant U.S.
Treasury secretary, said on Sunday.

He was speaking as the U.S. representative to the Manila-based
institution at its annual meeting in Thailand.

"Fundamentally, we do not foresee a need, or the prospect of
broad support, for additional capital resources for this bank,"
he said.

The U.S. effectively controls the ADB along with Japan, which
supports the bank's plan to work toward a capital increase,
according to Finance Minister Kiichi Miyazawa.

Xiang Huaicheng, the finance minister of China, a leading
borrower from the ADB, and most other Asian delegates also said
they favor a capital increase. Xiang said the bank's financial
position "leaves no room for optimism."

The bank's authorized capital is US$47.9 billion and its
previous general capital increase was in 1994. The bank would
like a sizable capital boost, possibly a doubling, to continue
its US$5-6 billion annual lending program and not face a
downgrade of its triple-A credit rating.

In addition to the bank's heavy lending during the Asian
financial crisis, adding to concerns about the bank's credit
rating was last year's decision to raise interest rates on its
so-called "soft-loans."