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IMF agrees to revised budget assumptions

Jakarta Post - October 11, 2001

Berni K. Moestafa, Jakarta – The International Monetary Fund (IMF) has agreed to the revision of key assumptions in the 2002 state budget draft, to ease Indonesia's budget targets in the face of a global economic recession.

"They (the IMF) don't object to the changes in the 2002 budget assumptions," Minister of Finance Boediono said after a meeting with the House of Representatives' budget committee.

The government and legislators agreed on Tuesday to a set of changes regarding the key assumptions for next year's state budget. The revisions followed new waves of uncertainty amid fears of a prolonged global economic downturn.

Economic growth, as measured by gross domestic product (GDP), was reduced to 4 percent from 5 percent, and the rupiah exchange rate against the US dollar was lowered to 9,000 from 8,500. Inflation was raised to 9 percent from 8 percent, while the Bank Indonesia interest rate target was maintained at an average of 14 percent. The oil production target, a large contributor to state revenue, was raised by 20,000 barrels per day (bpd) to 1.32 million bpd. Crude oil prices were maintained at US$22 a barrel.

The IMF dispatched a high level mission to Jakarta last week to review this year's state budget performance and next year's state budget outlook. The team, which left the capital on Wednesday, said it saw no need to revise this year's budget revenue targets, including those covered under the current Letter of Intent (LoI).

The LoI contains a set of reform targets the government must meet to obtain the IMF's aid. Among the reform targets vital for the budget are the government's privatization and asset sales program.

The two revenue sources should help finance this year's budget deficit, which the government hopes to contain at 3.7 percent of GDP. Asset sales have been progressing slowly and there have been no proceeds from privatization thus far. The government has earmarked 6.5 trillion rupiah (about US$650 million) in revenue from its privatization program this year.

Boediono acknowledged that the IMF had questioned the slow progress made in asset sales and privatization. He said they advised the government to speed up efforts to achieve those targets.

To catch up on the deficit financing, he said that the government would ask for the disbursement of foreign loans that were still in the pipeline. "There are some [loans] still pending, those from the World Bank, ADB [the Asian Development Bank] and probably also from Japan. We will request that the disbursement of these loans be expedited," he said, without remembering their total value. The ADB is reportedly withholding a US$600 million loan tranche until the government has met the bank's preconditions.

Elsewhere, Citibank N.A. economist Anton Gunawan said the revised budget assumptions were still too optimistic. He said that the Bank Indonesia interest rate next year would likely go higher than the average 14 percent targeted. "There is too much pressure to raise interest rates," he said.

He said foreign debt payments, inflationary pressure from cuts in energy subsidies and a weak rupiah reeling from domestic woes could prevent interest rates from relaxing. "We predict an average rupiah rate of about 10,000. Inflation is likely to come in at double digit rates, but slightly better than this year," Anton added.