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Score Card for the 1997/98 Budget |
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Ditulis oleh Mari Pangestu
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Jumat, 23 April 1999 |
The 1997/98 budget represents bussiness as usual given its similarity with the last few budgets. First is relatively low real increase. While the real increase in the budget is sligtly higher than previous years at 5-6% given lower inflation it is nevertheless still a relatively low growth. In any case, since government consumption and investment only accounts for arround 20% of GDP, the next direct effect on growth of the economy from the budget is relatively small.
| Second, fiscal policy is being targeted to ensure macroeconomic stability. The 1997/98 budget has a similar contractionary domestic impact as previous budgets (i.e.estimated as injection of rupiah as measured by routine expenditure net of foreign outlays such as interest payments plus rupiah financing of development expenditures, minus rupiah taken out of the domestic economy or non oil revenues). |
| | In terms of the domestic economy on the economy, the 1997 /98 budget is slightly less contractionary at Rp. 5.4 trillion compared with Rp. 6.6 trilion in th 1996/97 budget and Rp. 5.9 trillion in the realized 1995/96 budget. | | Third this budget also prioritizes infrastructure building, social welfare and decentralization. |
Other than bussiness as usual, what are the other interesting features and implications of this bugdet in the broader picture? An interesting trend to note in the budget is that the strategy to prepay high interest debt with the proceeds from the sale of shares of state owned entreprises and surplus in the budget, is showing up as lower payments in debt servicing. This approach should be continued and in fact by budgeting a decline in debt service payments in future to the perpayment of debt . The main advantage of this strategy is of course that there will more funds available in future for development spending which will enable financing of much needed infrastructure as well as social welfare programs. Furthermore, given the contribution of debt servicing to deficit in the services account, prepaying government debt will reduce debt servicing due to government debt and thus. make way for an increase in private debt. The latter is likely to increase if one expects greater private sector investments and privatization to increase the near future. |
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| | In this light it is of interest how the government will spend the extra revenues from oil taxes due to the higher realized oil prices - estimates to be close to $20/barrel -compared with the budgeted oil price of $16.50. It is hoped that, as has often been stated , that the extra revenues will be used to pursue the strategy of prepaying debt or to cover shortfall of revenues elsewhere, and not spent on other non budgeted items. On a broader front what sort of signal can one read from this budget about macro economic policy. | | On paper this is good news because it represents a vote for macro economic stability and appears to be predicated on a soft landing for 1997/98.
However, what is difficult to interpret is whether off budget expenditures and revenues have increased and what their magnitude is relative to the budget,
what their multiplier effects and wheter there has been an increase given stated in the budget itself that 1997/98 are "political years". | | |
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| It is also difficult to see much headway in this budget in achieving a larger budget surplus. As was discussed widely when th 1996/97 budget was announced, a larger budget surplus is needed to to raise domestic savings. Achieving this through raising tax rates has been outruled due to competition for investments with other countries in the region, however there is still scope and potential for widening the tax target, improving and intensifying the collection of taxes - such as land taxes, and minimizing leakage. | | Furthermore, as was also debated last year the issue of raising controlled prices to efficiency levels, such as fuels and developing appropriate user changes for public utilities and services, will do much to reduce government expenditures. Unfortunately, many of these actions will be difficult to undertake in the next two years. |
| | Other than the budget itself, the other important aspect is the projections on the balance of payment and the increase in the deficit from $8.8 billion over the 1996/97 to 1997/98 period. While this is amore realistic estimate on the part of th government, it underscores again the problem that will be faced this year and the next Even though the deficit is still considered manageable given that is still arround 4% or half the rate of economic growth, and that foreign exchange reserves are still high and increasing at around $20 billion an important component is ensuring that we do not go from an orange light to a red light situation with regard. | | to the deficit is that there continues to be around $10-11 billion capital inflow. The key is once again ensuring that investor confidence is maintained and that there is grater transparency, conducive investment climate and clearer signals with regard to various aspect that effect the investment climate such as policy direction, improvements in the credibility of government decision making and political outcomes. For various reasons this is the piece of the puzzle that defies quantifiable analysis and prediction - yet appears to be foremost on everyday's mind. |
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