Indonesia's new budget, which is designed to steer it out of its economic crisis, has been given a cool response.

Local analysts say it does not go far enough to implement the austerity programme demanded by the International Monetary Fund in its $45bn rescue package last year.

The annual spending plan was delivered at a time when Asian currencies are falling in value on the world's financial markets.

Earlier, the rupiah, the Thai baht and the Malaysian ringgit dropped to record lows against the US dollar before making a slight recovery.

Salaries pegged

Under the budget, there will be no increase in public service salaries, but subsidies on food and fuel will rise.

The government described it as an austerity budget. President Suharto said it demonstrated a commitment to the IMF reforms.

After recent concern over his health the fact Mr Suharto managed to deliver the hour-long budget speech to parliament at all, gave some cheer to the battled financial markets, but there was little else in it to lift their spirits.

Many economists said it was impossible to take the budget seriously because the government calculated it using over-optimistic predictions for the value of the currency and economic growth.

Mr Suharto gave his customary warnings about the need for financial prudence, advising Indonesians to think of themselves as subsistence farmers, who can only spend as much as they can earn.

But with the economy tumbling into a recession few people need any encouragement to spend less.

Overseas investment

Financial analysts say there is still no sign of a recovery in business confidence that could bring badly needed foreign investment back into Indonesia.

Investors are worried by the massive debts built up by private companies in the country. So far the government has done nothing to deal with this problem.

Millions have already lost their jobs and hundreds of businesses are believed to be on the verge of bankruptcy. The budget will make little difference to them.

Overall spending is up on last year, but the steep devaluation of the Indonesian rupiah may leave it worth less in real terms.

The BBC's Jakarta correspondent says that with President Suharto visibly weakened after his illness last month, the rest of his cabinet seems to have run out of ideas for saving the economy.
 

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