Joanne Collins, Jakarta – Indonesia's new government handed down its 2002 budget on Friday, walking a tightrope between fiscal prudence and stimulating growth in a bid to keep the debt-weary economy afloat.
President Megawati Sukarnoputri's first budget, which shows a 2.3 percent contraction in spending, is being closely watched by investors and donors anxious for an end to four years of crisis.
But the largely conservative blueprint, which must still be signed off by parliament, makes measly increases in development spending, slashes socially sensitive fuel subsidies and offers little for the millions of poor.
It forecasts economic growth increasing strongly to five percent from 3.5, but the top economics minister has already warned such an increase could be hard to achieve.
Major tasks ahead
Along with a bitter separatist war in resource-rich Aceh province, a major source of gas revenue, one of the toughest tasks facing the daughter of Indonesia's founding president is reviving the economy and restoring investor and donor confidence.
Megawati's predecessor, Abdurrahman Wahid, failed to push his 2001 budget through the feisty parliament unchanged. The House dumped him in July over charges of incompetence and corruption.
Megawati is likely to face a smoother run. Her party is the largest in parliament and although it still lacks a majority, her diverse coalition remains united so soon after coming together to oust Wahid.
Finance Minister Boediono said the government had done its best in the January-December budget to juggle its mountain of debt and spurring growth. "The government is trying to strike [a balance] between two main objectives: one is fiscal consolidation ... the other objective is to use as much as possible in our budget to stimulate the economy," he told a budget briefing.
Principle payments on foreign debt will double to 41.52 trillion rupiah ($4.6 billion) from 20.16 trillion which takes into account a previous debt rescheduling deal with the Paris Club of official creditors.
The government also cut fuel subsidies 40 percent to 32.29 trillion rupiah which will please foreign creditors and donors but result in hefty price rises – a potentially explosive move which has triggered bloody riots in the past. "We will find the best way to minimise the burden on the people," Boediono said.
Development spending inched up to 47.15 trillion rupiah, or 2.8 percent of gross domestic product (GDP), from 45.47 trillion in 2001, which will do little to speed the rebuilding of the country's crumbling infrastructure.
The government also set a more ambitious asset sales target, which will not only help plug the deficit but signal its commitment to offloading banks and companies whose value is shrinking. The cash target for selling assets under the powerful Bank Restructuring Agency (IBRA) was set at 35.3 trillion rupiah, up from 27 trillion.
Growth optimistic
The privatisation target was unchanged at 6.5 trillion rupiah, a realistic goal given the government is yet to raise a cent for the 2001 target. "We are proposing a policy that we will not use all [the privatisation revenue] to finance our budget deficit. We will use some to retire our domestic debt," Boediono said.
Key macroeconomic indicators were in line with expectations, but the five percent GDP growth could be regarded as optimistic. Chief economics minister Dorodjatun Kuntjoro-Jakti has already said Indonesia would be hard pressed to achieve this.
A rupiah exchange rate of 8,500 to the dollar was also expected as the government had said it was eyeing 8,000-9,000. But dealers were hoping for a level at the weaker end of the scale, given the currency's propensity for wild swings which caused the rate to be revised mid year in the 2001 budget.