The budget revised

The budget revised

Most people probably do not care much about the goodwill of
the House of Representatives in delivering on its promise to
approve, through a fast-track deliberation process, the
government-proposed amendments to the 2001 state budget on
Friday.

To them the process is simply a government exercise in
juggling the figures on its revenue and expenditure targets so as
to maintain the estimated fiscal deficit at 3.8 percent of gross
domestic product in spite of the much bigger spending caused by
the melting rupiah.

What really concerns the general public is how the changes in
the budget will affect their real income, their purchasing power.
Unfortunately, what the budget amendments boils down to are more
hardships for the low-income group, which has been suffering the
most since the beginning of the economic crisis in late 1997.

The average increase of 30 percent in fuel prices and 20
percent in electricity rates -- one of the most prominent
measures taken to allow for the budget amendments -- will
certainly trigger price rises in all goods and services as both
commodities are widely used in all sectors of the economy.

It is, however, too early to judge how the measure, designed
to cut down government spending on subsidies, will translate into
the prices of goods and services. Theoretically, that will depend
on the intensity of commercial energy use in the various sectors
of production.

Going by past experiences, there will initially be
psychological "shock" increases in the price of various goods and
services until they are subsequently corrected by the market
mechanism. After all, producers and traders are not in a position
to raise prices as they wish, given the weak purchasing power of
most consumers. However, this condition will only prevail if the
government can maintain adequate supply of essential goods and
secure their smooth distribution.

Two areas that are potentially disruptive are city bus
transportation and minimum worker wages, as can be seen in the
street demonstrations and strikes by bus drivers. But the
situation can be made less explosive if the government can manage
well the Rp 216.4 billion subsidies already allocated for city
bus companies to allow buses to operate soundly, even with only
small rises in fares.

The tricky problem besetting the management of all kinds of
subsidies in the country is how to set up an effective
institutional framework that can minimize misuse or abuse. But
whatever the risk of misuse, subsidies for city buses remain an
effective program to help those highly vulnerable to the price
increases, because it is the poor who mostly use bus services.

Likewise, the tripartite committees at the regional and
central government levels should immediately negotiate a
reasonable wage rise to compensate for the general price
increase, which will be triggered by the fuel and electricity
price hikes. An early review of the minimum regional wages would
surely help calm down, or at least reduce the anger of,
disillusioned workers.

Another urgent step is to set up an effective mechanism to
administer the other Rp 2 trillion already allocated for the
social safety net program to help cushion the poor from more
pains resulting from the harsh fiscal measures.

The government, we think, should have learned a great deal
from the shortcomings and misuse of funds in its previous social
safety net programs, which were launched during the peak of the
economic crisis in 1998.

It should, nevertheless, be realized that the social safety
net program will not be able to altogether prevent additional
hardships ahead. It would prove helpful if the people were made
to perceive that the pains were shared fairly and made to believe
that the sufferings would lead to a better tomorrow.

The situation ahead is especially vulnerable, given the
leadership crisis and the upcoming special session of the
nation's highest legislative body, the People's Consultative
Assembly.

Now that the government has taken the plunge and bitten the
bullet, it is the turn of Indonesia's largest creditors -- the
International Monetary Fund, the World Bank, the Asian
Development Bank and Japan -- to come up with their contribution
to help the government and nation navigate through the tumultuous
period ahead.