WB supports government's 2001 fiscal adjustment package

WB supports government's 2001 fiscal adjustment package

JAKARTA (JP): The World Bank has expressed its full support of
the government's fiscal adjustment package, which contains
various measures to prevent the 2001 state budget deficit from
growing out of control.

The Ministry of Finance said in a statement issued on Friday
that the support was conveyed by World Bank deputy chairman
Jammal Kassum during a meeting with Minister of Finance Prijadi
Praptosuhardjo at the 34th annual meeting of the Asian
Development Bank in Honolulu, Hawaii.

"(The World Bank) also expects that the discussion with the
House of Representatives will progress positively to help revive
confidence (in the economy)," the statement said.

The deficit in the current January-December state budget could
widen to a critical level of up to 6 percent of gross domestic
product (GDP), or about Rp 80 trillion (about US$7.2 billion).
Initial projections estimated a deficit of 3.7 percent, which has
been shattered by a sharp plunge in the value of the rupiah
against the U.S. dollar and rising domestic interest rates.

Senior economic ministers have been involved in intensive
meetings over recent weeks to revise the state budget and design
measures aimed at restricting the deficit to a safer level of
around 3.7 percent of GDP.

The measures contained in the fiscal adjustment package focus
on increasing domestic revenue and cutting spending.

Among the crucial measures, analysts said, are plans to raise
tax revenue and fuel prices.

Although no figure has been fixed, the government may have to
increase the value added tax (VAT) from the current level of 10
percent, in a bid to collect more tax revenue which may increase
by up to Rp 10 trillion. The government originally targeted
nearly Rp 180 trillion in tax revenues.

Director General of Tax Hadi Purnomo said on Thursday that,
according to the existing law on VAT, the government was entitled
to raise the VAT to a maximum level of 15 percent.

The government also plans to reduce the fuel subsidy by a
larger amount than initially planned, which may cause fuel prices
to increase by an average 30 percent this year.

There have been fears that increasing fuel prices could
trigger widespread social unrest.

The revised budget will also change: the exchange rate
assumption of the rupiah to Rp 9,600 per U.S. dollar from the
previous assumption of Rp 7,800 per dollar; the inflation rate to
9.3 percent from 7.2 percent; economic growth to 3.5 percent from
5 percent; and the interest rate of Bank Indonesia SBI promissory
notes to 15 percent from 11.5 percent.

Minister of Industry and Trade Luhut B. Pandjaitan said this
week that the government would submit the revised budget and
fiscal adjustment measures to the House following final approval
by the Cabinet on May 16. The House will debate the government
proposal, which may need to undergo some changes before being
approved by the legislature.

The government was expected to have already started the
deliberation process with the House last week, with the hope of
completing it by the end of this month.

The International Monetary Fund (IMF) has said that it would
only agree to a resumption of talks with the government over its
economic bailout program after the House approved the budget
revisions.

The IMF canceled the disbursement of its third US$400 million
loan tranche to Indonesia late last year upon signs that the
government was wavering with the implementation of an agreed
economic reform program.

The IMF promised the current administration a $5 billion
bailout package early last year. The Fund has so far disbursed
around $1 billion.

Meanwhile, the IMF said on Thursday that the move by the
government to improve its fiscal position offered a good basis
for restarting talks on the stalled loan program.

"Last week the finance minister informed us of the elements of
a fiscal package that would broadly restore the budget deficit
target to 3.7 percent of GDP," IMF spokesman Tom Dawson was
quoted by Reuters as saying in Washington. (rei)