Tim Dodd, Jakarta – President Abdurrahman Wahid expects his first Budget, which tries to meet a multitude of conflicting economic challenges, to return Indonesia to pre-crisis growth levels of 6-7 percent within five years.

Its key change is an ambitious reform of the notoriously inefficient and corrupt taxation system which aims to cut exemptions, streamline administration and combat fraud.

These measures, with a rise in excise on cigarettes, are planned to boost tax revenue by 30 percent compared to the Budget last year and give enough fiscal leeway to cope simultaneously with the debt hangover from the economic crisis and the cost of introducing economic and political reform.

The Budget also takes advantage of a revenue windfall from the high world oil price which has boosted the Government's oil and gas revenue by 135 percent compared to the previous Budget. The 2000 Budget will increase revenue to 15.1 percent of GDP, compared to 10.6 percent last year.

Although the extra revenue provides a welcome cushion, it is, according to the senior economics minister, Mr Kwik Kian Gie, a "survival Budget", although it does assume healthy economic growth of 3.8 percent this year.

The big drag is interest on government debt which now includes funds to recapitalise the banking system. Interest costs are estimated to increase by 44 percent over last year that is 6.5 percent of GDP this year, compared to 4.5 percent last year.

The Government has to meet the costs of other programs essential to keeping Indonesia stable. Allocations to the regions are up by 26 percent, based on a new formula which rewards provinces rich in natural resources. It is aimed at quelling separatist feeling in Aceh, Irian Jaya (now called Papua), Riau and East Kalimantan all big winners under the new formula.

But the Government is already sliding away from one key goal, to increase the woefully low salaries of officials to help remove the temptation for corruption.

It has budgeted for a 16 percent increase in salary costs this year, which would pay for a 20 percent pay rise delivered in two stages. Higher increases were to be given to senior officials and the judiciary but an outcry about rises that would have flowed to ministers, and to the President, yesterday prompted the Government to allow Parliament to determine the distribution.

However, the Government is reducing spending by cutting subsidies for goods including electricity and some staple foods.

Successful implementation of the Budget strategy depends on inflow of foreign investment and a return of much of the Indonesian capital which left during the Asian crisis.

If the strategy works the Budget deficit, estimated to be 5 percent of GDP this year, will be balanced by 2004. And government debt, which is now 100 percent of GDP, will reduce to about 65 percent by 2004. The Budget covers nine months, from April to December, because the Budget cycle has been realigned. The Budget and news of a new economic reform agreement between the Government and the IMF helped push the Jakarta stockmarket up 2.2 percent yesterday.