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Indonesia’s New Budget - Painful Choices - 2001-09-07


Indonesian President Megawati Sukarnoputri has presented her first budget to Parliament, calling for steep increases in taxes and fuel prices in order to address Indonesia's four-year-old economic crisis.

President Megawati Sukarnoputri Friday told the Indonesian Parliament her government has been forced to make difficult choices in next year's budget. But she says, with cooperation and discipline, they can overcome the problems one-by-one, and provide a better future for Indonesians.

It was the Indonesian leader's first budget since she became president in July following the removal of her predecessor, Abdurrahman Wahid.

The budget calls for a 40 percent reduction in fuel subsidies by January, which analysts say could cause fuel prices to rise by 30 percent. It also calls for an increase in electricity prices and increases in income and value-added taxes.

The increases are aimed at cutting the budget deficit nearly in half, to about 2.5 percent of gross domestic product.

While the moves might make fiscal sense, fuel price increases have in the past sparked violent protests.

The budget proposal also calls for the sale of about $4 billion worth of public assets, including banks, which failed during the Asian economic crisis of 1997. The crisis and the cost of the government-sponsored bail-out is largely responsible for the current budget problems.

Indonesia has been negotiating with the International Monetary Fund (IMF) and other creditors to reschedule part of its $160 billion foreign debt, which is larger than the country's annual economic production. A delegation is due to leave soon for France to discuss rescheduling nearly $3 billion of debt owed to the Paris Club of government creditors.

The head of the IMF office in Jakarta, David Nellor, told reporters the budget is a good balance between austerity measures to stabilize the economy and stimulus measures to boost economic growth.

But private sector analysts were more critical. They said the budget overestimates economic growth of five percent next year, and is too optimistic about the privatization program.