Soeharto unveils tight budget

Soeharto unveils tight budget

JAKARTA (JP): President Soeharto proposed a tight budget to the House of Representatives yesterday for the fiscal year 1995- 1996 which, though up by a mere 2.5 percent in real terms, raises the salaries of government personnel by an average 10 percent.

The draft state budget, which begins in April, will balance at Rp 78.02 trillion (US$35.5 billion) consisting of Rp 47.24 trillion in routine (operating) spending and Rp 30.78 trillion in public investments.

The government expects Rp 13.27 trillion (17 percent of total revenues) from oil and gas taxes based on an average price of US$16.5 per barrel, Rp 52.98 trillion (67.92 percent) from non-oil taxes, duties and levies and Rp 11.76 trillion (15 percent) from foreign loans.

The budget plan was unveiled against a robust economic growth of more than 6.5 percent last year but with a note of caution against inflationary pressures.

"Our inflation last year was 9.24 percent which, though remaining one digit, was already too high, much higher than the projected target of five percent for the Sixth Five Year Plan period (1994- 1999)," Soeharto said in his budget address.

He devoted a great deal of his speech to reminding the people of the dangers of an overheated economy, as the one in 1991 that forced harsh monetary measures.

"We must ensure that our economic growth, which is expected to remain high, will not become counter productive," Soeharto added.

He called for extra caution about private borrowings overseas because the current account deficit in the current fiscal year is estimated to increase to $3.5 billion from $2.9 billion last year.

Soeharto reiterated the task of building a strong economy that leads to an increasingly fair and equitable prosperity of the people.

"That requires greater participation by the widest possible segment of the community as well as the highest possible efficiency and productivity," he said.

He charted out the future challenges the nation is facing amid the major and fundamental changes in the world and called on the people to prepare themselves for the new future.

"Internally, the governmental and economic orders must be shifted from a centralized to a more decentralized order so as to expand the people's initiative and creativity," Soeharto said.

Externally, he added, the flow of trade, service and capital must be generated and facilitated.

He reemphasized the importance of further strengthening the competitiveness of domestic producers in facing up to the year 2020, when Indonesia must fully open up its economy to global trade within the Asia Pacific Economic Cooperation scheme.

In this context, Soeharto stressed the need to reduce the protection of domestic industries from import competition, which became the subject of heated debates a few weeks ago following a proposal from politically-well connected businessmen for high tariff protection of their olefin plant.

"The reduction of protection must be conducted very selectively, with planning and in stages," he pointed out.

He set three conditions for the granting of protection to domestic industries: It should be given for a limited period of time and should be gradually reduced; It must not be contrary to international trade agreements as those under the World Trade Organization, AFTA and APEC; Its level must not stifle or hinder the growth of downstream industries.

The President reiterated the need for further withdrawal, by the government, from economic activities that can be more efficiently conducted by the people, especially the private sector.

"The government gives direction, support and endorsement. Government investments will be directed more to improve the quality of human resources and the development of economic infrastructures."

Minister of Finance Mar'ie Muhammad who, together with other economics ministers, briefed newsmen on the draft budget on Wednesday night, said that bank credit expansion in the next fiscal year would be limited to 19 percent, lower than the 25 percent increase estimated in the current fiscal year.

The government will do its utmost to check inflation this year at six percent at the most, he said.

Mar'ie estimates the rupiah exchange rate against the American dollar at Rp 2,256 at the end of March, 1996, or representing a depreciation of three percent from the estimated level at the end of next March.

Bank Indonesia's Governor Soedradjad Djiwandono projected export growth in the fiscal year 1995-1996 at 16.5 percent, higher than the 14.5 percent estimated for 1994-1995, and import growth at 15 percent.

But since private capital inflows are projected to increase to $5.07 billion and official capital inflows to $6.48 billion, the overall balance of payments at the end of March, 1996 will still produce a surplus of $1.8 billion despite the estimated deficit of $4.1 billion in the current account (trade of merchandise and services).

"We therefore expect our foreign reserves to increase from $13.7 billion at the end of next March to $15.5 billion or equivalent to five months of imports in March, 1996," Soedradjad said.(vin)