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Megawati unveils 2001 draft budget JAKARTA - Vice President Megawati Soekarnoputri unveiled on Monday the draft 2001 state budget which will be unlikely to provide any stimulus to the economy because quite a large portion of the spending will go on servicing government debt and financing subsidies. The budget envisages state revenues at Rp 243 trillion (US$27.93 billion)and total spending at Rp 295.1 trillion, resulting in an estimated deficit of Rp 52.1 trillion or 3.7 percent of gross domestic product (GDP).

"This deficit will be financed both from domestic and foreign sources," President Abddurrahman Wahid said in a budget address read out by Megawati at a plenary session of the House of Representatives chaired by Speaker Akbar Tandjung. President Abdurrahman Wahid is away on a state visit to several Latin American countries.

The January-December 2001 budget will be the country's first calendar-year budget. The current April-December 2000 budget is a transitional one from the previous fiscal years that ran from April 1 to March 31. The budget assumes economic growth of 4.5 percent, an average rupiah exchange rate of Rp 7,300 to the dollar compared to Rp 8,700 now, inflationof 7 percent, an average oil price of $22 per barrel compared to $33 now, and Bank Indonesia's benchmark interest rate at 11 percent as against 13.60 percent today.

The President said that despite the severe budget constraints, the government was trying to improve the welfare of government employees. "The step to be taken is improving the salary system, namely to integrateall income supports into the main salary," he added.

However, the juggling of the salary and allowance components does not seem to make any difference to the take-home pay of government personnel. In fact, if the personnel expenditure in the current nine-month budget isannualized and the whole-year spending is compared to the Rp 39.89 trillion personnel spending budgeted for next year, the end result is a decline evenin nominal terms, let alone in real terms (adjusted for 7 percent inflationthis year).

Abddurrahman said that Rp 32 trillion of the fiscal deficit would be covered with the proceeds from the sales of state companies and asset recovery by the Indonesian Bank Restructuring Agency (IBRA) and the other Rp 20.1 trillion with new foreign loan disbursements. The government is scheduled to meet with the country's traditional donors grouped in the Consultative Group on Indonesia (CGI) in Tokyo on Oct. 17-18 to seek some $4.8 billion in loans.

Domestic tax receipts will contribute Rp 163.4 trillion or 67 percent of total revenues with the bulk of them expected to come from income tax and value added tax. The spending plan reflects the huge debt burden, as can be seen in the Rp55.8 trillion, or 4 percent of GDP, appropriated for the interest costs of treasury bonds and Rp 21.6 trillion for servicing foreign debts.

As the bulk of revenue has to be used for recurrent (routine) spending, only Rp 33.36 trillion or 11.3 percent of the total spending will be available for public-sector investment in basic infrastructure. "More than Rp 74 trillion or around a quarter of the total spending will be allocated to provincial and district administrations to help them implement their new political and economic powers," the President said.

The government will begin implementing the regional autonomy and fiscal decentralization policy in January. Chief economics minister Rizal Ramli told a media briefing on the budget on Sunday evening that the regional autonomy policy was crucial to help prevent the country from disintegrating. The government expects the economy to grow by 4.5 percent next year, compared to an estimated 3.8 percent for this year. "For 2001 ... it is to be hoped that private investment will be able to become the driving force (for economic growth) together with exports and consumption," Abddurrahman said. "By setting up investment and exports as the main driving forces of the economy, it is expected that the process of Indonesian economic recovery will be faster and remain sustainable," he added.

The government said an average exchange rate of Rp 7,300 to the dollar was possibly achievable through various effective policies in the monetary and real sectors as well as by continuously improving co-ordination and synchronization between Bank Indonesia as the monetary authority and the government as the fiscal authority. The rupiah is currently hovering at around Rp 8,775 per dollar. "With a stable rupiah exchange rate ... the inflation rate will be controllable at around 7 percent while interest rates (on Bank Indonesia one-month SBI promissory notes) will be maintained at around 11 percent," Abddurrahman added.

Inflation this year is expected to surpass the government target of 5-7 percent due to the 9.25 percent rise in fuel prices as from Sunday. The budget allocates Rp 36.39 trillion for fuel subsidies and Rp 11.87 trillion for other subsidies, including those for rice, agricultural credit programs and electricity. The financial notes attached to the budgetary address say that the fuel subsidy estimate for next year assumes another fuel price increase of 20 percent next April. The price increase is part of the effort to reduce the budget burden and to eventually phase out fuel subsidies by 2004.



Posted in Politics @ 02 October 2000 00:01 CET by Jeroen · 'Blog' RSS feed · permalink






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