Roundup: Indonesian President Pledges to Restore Economic Order

Indonesian President Megawati Soekarnoputri Friday unveiled a draft state budget for 2002 fiscal year, pledging to restore economic order in the country.

Introducing the budget bill for 2002 and the financial notes to the House of Representatives here, the president said the government will take measures to encourage investment, particularly foreign investment which is capable of absorbing a significant number of workers.

The government would also take steps to improve public welfare and give people a decent life.

During 2002, the government plans to earn 289.432 trillion rupiah (about 34 billion U.S. dollars), and the spending will stand at 332.464 trillion rupiah (about 39.1 billion dollars), so that the budget deficit in the fiscal year 2002 is expected to be 43.032 trillion rupiah (about 5 billion dollars).

To revive the country's economy, Megawati said, the government is compelled to raise fuel oil prices next year even though this means additional burden to the people.

"This decision is a heavy problem because it must be taken so as to balance the budget -- an important step to revive our economy," Megawati said.

The oil price hike cannot be avoided, she said, pointing out that if the government maintains its oil subsidy it will not have enough funds to finance its development program.

But the president maintained that despite the fuel price hike, the government will give full attention to the people's problems.

The government has set the country's economic growth target in 2002 at 5 percent, slightly higher than the 3.5 percent target in 2001.

Explaining the target, Finance Minister Boediono said the target was based on the government's expectations on the recovery of economic and non-economic factors.

Growth, he said, will be pushed by the recovery of private consumption, investment and export.

Meanwhile, Coordinating Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti said the 5 percent growth target is not the ideal figure.

"The ideal number is 7 percent, and we will work hard to achieve it," he said.

The government also assumed inflation rate in 2002 at 8 percent, compared with 9.3 percent in 2001, and the rupiah's exchange rate against the U.S. dollar at 8,500, compared to 9,600 this year.

Interests on central bank certificates were assumed at 14 percent, better than the 15 percent figure in the 2001 state budget.

The government has made a conservative estimate of fuel oil prices in the 2002 state budget compared with the previous year's budget.

Fuel oil price is estimated at 22 U.S. dollars per barrel in the 2002 state budget, lower than 24 dollars per barrel figure in 2001.

Indonesia's oil production is also estimated at 1.46 million barrels per day in the 2002 state budget, compared with 1.23 million barrels per day last year.

Praising the state budget, the World Bank and the International Monetary Fund (IMF) said it struck the right balance between prudence and stimulating growth.

"It's a prudent budget recognizing the importance of stabilizing the economy and social goals," IMF's senior resident representative in Jakarta David Nellor said.

The World Bank described it as "well designed", saying the macroeconomic assumptions were generally realistic.

But some economists believed that the economic growth forecast of 5 percent was too bullish.

"If you look at the assumption they are quite pragmatic but my main problem is with the GDP growth, which at 5 percent is very optimistic," Danareksa Securities economist Raden Pardede said.

Commenting on the new budget, House Speaker Akbar Tandjung reminded the government to maintain consistency in its fiscal policies, so as to maintain macroeconomic stability and to create a conducive business climate, which in turn will help restore public confidence in the government.

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