RI's budget deficit may exceed 3.2% of GDP

RI's budget deficit may exceed 3.2% of GDP

JAKARTA (JP): International Monetary Fund (IMF) Asia Pacific
director Hubert Neiss estimated yesterday that the Indonesian
budget deficit in the 1998/99 fiscal year would be significantly
higher than the initial estimate of 3.2 percent of gross domestic
product (GDP).

"We have to accommodate more (expenditure) for subsidies and a
program to help small-scale businesses so the deficit will be
significantly above previous assumptions of below 4 percent,"
Neiss told members of the House of Representatives here.

He told the Inter-Parliamentary Cooperation Body (BKAP) that
the government had no choice but to raise expenditure on social
welfare programs such as food and fuel subsidies to minimize the
impact of the economic crisis.

It would also have to increase expenditure on health,
education and job creation schemes.

The supplementary agreement between Indonesia and the IMF,
signed here in April, states that the budget deficit for the
1998/99 fiscal year should be limited to 3.2 percent of GDP.

One hundred and three BKAP members signed a letter addressed
to the IMF managing director Michel Camdessus urging the fund to
quickly resume disbursement of loans to help restore the
country's economy.

The IMF brokered a US$43 billion bailout program, $10 billion
of which comes from the fund itself, to help lift the Indonesian
economic crisis. So far $4 billion has been disbursed.

A further $1 billion was due on June 4 but was delayed
following last month's massive riots which led to a change of the
presidency.

The body handed the letter over to Neiss during yesterday's
two hour meeting.

At the meeting, Neiss also said that the year-end exchange
rate target of Rp 6,000 to the U.S. dollar was no longer
realistic and must be revised.

Neiss refused to make a forecast, but said the exchange rate
would be likely to be below Rp 11,000 to the dollar.

The rupiah closed at 14,700 to the dollar yesterday, compared
to its pre-crisis level of 2,450 last July.

Neiss noted the importance of keeping interest rates high to
prevent the rupiah from sinking even further.

Monetary policy should be conducted "in way that doesn't lead
to an outbreak of hyperinflation", he said.

Neiss suggested several measures to help relieve the effect of
high interest rates on business, including interest rate
subsidies for small and medium sized enterprises.

Neiss said the IMFs immediate objective was to rehabilitate
the distribution network for essential goods.

It also hoped to speed up the rehabilitation of the banking
system to prevent collapse of the country's banking sector, he
said.

He pledged to finish his task in Indonesia as expeditiously as
he could and to avoid any unnecessary delay, but stressed that
his work could not be done overnight.

"Overcoming the crisis is not only urgent for Indonesia but
also for the rest of the world because the crisis affects other
countries," he said.

But he quickly asserted that recovery lay solely in the hands
of Indonesia.

"The IMF and other agencies can make a useful contribution ...
and provide financing needs, but only Indonesia itself is in
control of events," he said.

Asked whether the country's political situation had delayed
the disbursement of loan installments, Neiss said the IMF never
set any political conditions.

"If you look in all the letters of intent there's no mention
of any political conditions," he said

However, political stability was important for economic
programs to succeed, he said.

"That's no condition, that's a fact of life." (das)