Transparent budget

Transparent budget

President Soeharto's instruction to State Minister of National
Development Planning Ginandjar Kartasasmita that the 1998/1999
draft for the state budget be realistic and fully transparent
will surely send a positive signal to the market. The chief
executive's order serves to assure the public and the
international markets that the government is fully aware of the
magnitude of the problems the nation is facing and is really
doing something to address them in an open, accountable manner.
An atmosphere of accountability and transparency would make it
easier to gain cooperation and understanding on the part of the
public during this period of hardship.

This does not mean, however, that we can expect the rupiah's
volatile rate against the American dollar to stabilize within the
next few days or weeks. After all, what we are facing now is not
a short-term liquidity crisis but the cumulative brunt of long-
neglected structural imbalances. The currency turmoil will likely
continue at least until the end of March, when a new president
and vice president are elected and a new cabinet installed.

But the more positive the signals given to the market, the
sooner the period of uncertainty currently engulfing our economy
will end. And, the more effective and quick will be the painful
adjustment measures in restoring our economy on the path of
sound, high growth.

Many people may remain skeptical, after having often
heard such official pronouncements in the past but seeing it was
business as usual. After all, transparency always has been the
most important character of good governance missing in our state.
But now there is a big difference that will force the government
to act. The dire economic situation the nation is facing is the
worst since 1965. It is a matter of survival rather than simply
weathering a short-term economic down cycle. The rupiah's
exchange rate against the American dollar has now declined by
more than 45 percent over the past four months alone, giving
shocks to the entire economy.

Preparing the coming budget is predictably an extremely
difficult exercise because of the high volatility of the rupiah
exchange rate, which plays a significant role in determining
major items of revenues (oil and natural gas exports) and
spendings (foreign debt servicing). What is certain, though, is
that the next budget will be a battered and bare-bones one due to
the sharp decline in tax revenues. Even the current budget, which
is envisaged to end in March at a balanced total of Rp 101
trillion, would be much lower than the original plan because most
of the biggest corporate-income taxpayers would suffer from large
foreign exchange losses.

To be realistic, the coming state budget should fully reflect
the true condition of the economy. Meaning that government
spending should be adjusted to smaller tax revenues and the
priority of spending should fairly distribute the pains of
adjustments and structural reforms being implemented. The blunt
fact is that we should tighten our belts for more pains next
year, when the full impact of the structural reforms will begin
to hit the nation.

As the state budget should produce a surplus of at least
equivalent to 1 percent of the gross domestic product -- one of
the bitter medicines prescribed to stabilize the economy -- the
government may have to slash its investment budget to allow for a
reasonable rise in the operating budget. Subsidies have to be
cut. Obviously, the top priority investments will remain in rural
development, poverty alleviation, education, health and social
services. This spending priority is crucial because in a
difficult situation such as we are in now it is always the low-
income people who suffer most.

The term "transparency", coined by the President for the
manner in which the state budget should be prepared, will
generate a better political climate for state accountability
which has, thus far, been criticized by the two minority factions
in the House of Representatives and most private-sector analysts
who describe it as lacking. Transparency means that the revenue
and spending accounts will be presented in such detail that the
House will be able to make a meaningful assessment of how
taxpayers' money will be spent.

Until last year, the draft budget had been presented only in
such broad outlines as sectoral and subsectoral spending that
House debates became mostly perfunctory exercises. Worse still,
since quite a portion of non-tax revenues had not been accounted
for in the budget, the House remained in the dark about how much
the government actually spent and for what purposes.

If a true spirit of transparency were to be really applied to
the state budget, something prodemocracy activists have fought
for over the past two decades, it truly would be a great blessing
in disguise as far as the current crisis was concerned. It would,
in turn, significantly accelerate the process of regaining market
confidence in our economy.