Indonesia has announced a revised budget in line with economic targets agreed last week with the International Monetary Fund.

In a televised speech to parliament, the Finance Minister, Mar'ie Muhammad, said the changes were to make the budget more realistic.

The announcement of the budget follows a dramatic decline in Indonesia's currency and stock market in response to President Suharto's original budget earlier this month.

Economic difficulties led to panic buying

The revised version includes further cuts in fuel subsidies, predicts zero economic growth as well as an inflation rate of 20% and a currency exchange rate of 5,000 rupiah to the dollar.

At present, the rupiah is trading at less than half that value, and food price rises have led to street riots in some areas.

Questions over the economy remain

Some analysts questioned whether the revised budget would restore economic confidence.

Thee Kian Wie, senior research associate at the Centre for Economic and Development Studies in Jakarta, said the revised budget already seemed out of touch.

"I'm afraid inflation may be higher than 20%, of course the rupiah is hovering way up, and growth may not even be zero, it may very well be negative, " he said.

Many commentators also point to the massive short-term debt held by private companies, and the country's antiquated bankruptcy laws as problems needing urgent attention.

"The best way to create confidence is to clean the banking system, and the only way I know of doing that is to let a couple of names (companies) go," said Philippe Dalhaise, president of Thomson BankWatch Asia.

The existing bankruptcy law has thwarted efforts to force debtor companies and banks into liquidation.

The BBC correspondent in Jakarta says many analysts believe that until this issue is addressed, foreign investors will stay away from Indonesia.

Initial response cool

The budget announcement did not appear to have a great impact on the markets in Indonesia.

The stock market managed a small rise, helped mainly by a climb in telecommunication shares.

The composite index of 287-companies was up by 1.47% to end the morning session at 450.05,

The currency, the rupiah, settled at around 12,200 to 13,200 by mid-day after falling to a low of 15,000 in the morning.
 

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