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.