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.