State budget no stimulant to the economy

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)