Indonesia to unveil 2000 budget, sign IMF accord

Asian Economic News, Jan 24, 2000

JAKARTA, Jan. 19 Kyodo

Indonesia will unveil Thursday its state budget for 2000, which describes the economic reform agenda of the new government.

The program will include raising salaries for civil servants as part of efforts to eliminate corruption and calls for an audit of military businesses.

At the same time, a new agreement with the International Monetary Fund (IMF) is to be signed.

The budget is expected to give a description how the country will join its neighbors in restoring an economy that has been in crisis since mid-1997.

The budget, to be delivered by President Abdurrahman Wahid and Vice President Megawati Sukarnoputri, will cover the period from April 1 to Dec. 31, 2000 because the government is aligning its April 1 to March 31 fiscal year with the calendar year.

The budget needs approval from parliament before it takes effect.

"The budget...will seek to balance the need to phase in higher civil service salaries while enforcing higher performance standards, to steadily cut back subsidies, while protecting the poor, and to reduce external borrowing, while providing adequate stimulus to the economy," Coordinating Minister for Economy, Finance and Industry Kwik Kian Gie told Indonesian donor representatives last month.

According to the final draft of a letter of intent to be signed by Kwik and the IMF, economic growth is predicted to be 3 to 4% for the calendar year 2000, against an estimated 1 to 2% the previous fiscal year.

"Low single-digit inflation will be entrenched," the letter says.

The budget is expected to set the price of crude oil at 18 U.S. dollars per barrel, up from 10.5 dollars, and expects an exchange rate of 7,000 rupiah to the dollar, up from 7,500 rupiah in the current fiscal year.

The government has said it will need about 5 billion U.S. dollars to finance its budget deficit, about 3.2% of the nation's gross domestic product.

To protect local farmers from imports, the government and the IMF have also agreed to re-impose a duty on sugar and rice.

"We have decided on 25% for sugar and about 30% for rice," Minister of Industry and Trade Yusuf Kalla said Tuesday.

The IMF earlier had opposed plans to put duties on the two commodities. The duty was earlier cut to zero following pressure from the Fund, which has been championing a free and open market.

But the government insisted that no duty would harm local farmers as the price of imported rice had declined sharply due to the strengthening of the rupiah.

For the first time, the budget will introduce fiscal reforms with the implementation of fiscal decentralization by June 2001 in accordance with new laws on regional governance and fiscal balance.

Under the laws, the central government will receive less money from natural resources produced by resource-rich provinces such as Aceh, Irian Jaya, Riau and East Kalimantan.

Indonesia is currently facing demands for independence from the provinces, saying the central government has been stealing their natural resources.

According to the letter of intent with the IMF, the basic wage of public servants will be raised in two installments of 10% each, to be implemented on April 1 and Oct. 1.

Controversy, however, emerged after a document showed Wahid's monthly salary will rise almost 400% from 27 million rupiah to 107.4 million rupiah and Megawati's from 22.9 million rupiah to 89.5 million rupiah.

The agreement also said the government will instruct the Supreme Audit Agency to make financial audits of "all government agencies, including the military."