State budget no stimulant to the economy

The government's 2001 budget estimates revenue at Rp 243 trillion (US$27.93 billion) and spending at Rp 295.1 trillion. Hadi Soesastro, executive director of the Centre for Strategic and International Studies (CSIS), says the budget will have no power to propel the country's economy.

Question: Do you think the government will reach its revenue target?

Hadi: The target will be easily achieved. Even though the government's revenue in 2000 was originally targeted at Rp 152.9 trillion, realized revenue is now projected at Rp 253 trillion due to the unexpected increase in world oil prices.

Q: Will the Rp 52.1 trillion budget deficit increase the financial burdens of the government?

A: Of course. Since the funds from the sales of assets controlled by the Indonesian Bank Restructuring Agency (IBRA) are still limited, the government will have to raise loans from abroad.

We learn that out of the budget deficit, Rp 32 trillion will be financed from the sales of government assets -- sales of shares in state companies (Rp 5 trillion) and sales of assets held by IBRA (Rp 27 trillion) -- and the other Rp 20.1 trillion from new foreign loans.

The foreign loans will be part of the Rp 35.99 trillion ($4.8 billion) expected from traditional creditors grouped in the Consultative Group on Indonesia (CGI). The remaining Rp 15.8 trillion will be used to repay foreign debts.

Q: How should the government reduce its financial burdens?

A: IBRA should sell its assets as fast as possible and use the proceeds to repay debts, not to finance the government budget. The government's debts are so huge that its interest obligations alone are very burdensome. Interest payments on bonds worth about Rp 600 trillion (used for the restructuring of commercial banks) alone, for example, will reach Rp 55 trillion in 2001.

Q: Will the government's budget be able to propel the economy?

A: No. It is quite an austere budget and its impact on the economy's growth, if any, will be very little.

If the government projects the economy to grow by 4.5 percent in 2001, the growth will come from exports, domestic private investments and household consumption.

Q: Would the allocation of Rp 74.9 trillion to the regions help boost economic activities in provinces?

A: It probably will. The problem is the fiscal decentralization makes it unclear for what sectors the local administrations will spend the funds on. We will probably have to tolerate some waste and corrupt practices during this learning period.

Q: Is the government's assumption that the rupiah will stay at Rp 7,300 per U.S. dollar in 2001 realistic?

A: I'm not interested in whether it is realistic or not. I'd rather talk about whether it is really necessary to strengthen the rupiah to Rp 7,300 per dollar.

At Rp 8,750 to the dollar, the rupiah is currently undervalued. At Rp 7,300, it will be too strong. That level of the rupiah will reduce Indonesia's export competitiveness. This will affect the economy because growth is expected to come from exports, besides domestic investments and household consumption.

For me, strengthening the rupiah to between Rp 7,800 and Rp 8,000 a dollar will be good enough.

We hope the government's rupiah target is merely aimed at encouraging people to sell their dollars.

Q: What do you say about the government's estimate that interest rates will fall to 11 percent a year from 13.6 at present?

A: It seems that the government wants to encourage new investment. With low interest rates on Bank Indonesia's promissory notes (SBI), inflation can be kept low (projected at 7 percent in 2001 under the budget plan).

Q: Are the conditions conducive for new investments?

A: Now that security conditions are so poor, we cannot expect big investments to come. Foreign investors are interested only in small businesses with low risks but fast return.

Q: Do you see any inconsistency in the government's budget plan?

A: Yes. The government seems to realize that its financial capability is limited, but it still wants to bail out the heavily-indebted private companies, without giving details on how it would do this. If the money to bail them out is not stated in the budget, from where will the government get the funds? If it is included in the budget, the House of Representatives will then have to approve the government's plans to take over the shares of PT Chandra Asri, PT Petrokimia Tuban, PT Texmaco, etc. (Rikza Abdullah)