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)