ASEM finance ministers' meeting gets underway

Dadan Wijaksana, The Jakarta Post, Nusa Dua, Bali

The fifth Asia-Europe Meeting (ASEM) for finance ministers opened here on Saturday amid the current uncertainties and challenges facing the global economy.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti stressed in his opening speech, the importance of the two- day meeting for the development of economic and financial corporation between the two continents to overcome those challenges.

"Having a solid start in the first half of 2002, the global economy turned out to be less assuring in the second half of 2002 and first half of 2003. Growth was affected by several unfavorable factors, such as higher oil prices and the general uncertainty associated with the Iraq crisis, volatility in the financial markets and the outbreak of SARS in Asia," he told the 31 participating delegations.

As a result, he went on, the economic outlook for the European Union had been revised downward, while Japan's economy, which had begun to recover last year, had again slowed.

The economic outlook in East Asian countries will be more sober than initially thought, with growth expected to average 5 percent, he added.

Dorodjatun was speaking on behalf of President Megawati Soekarnoputri, who was initially scheduled to open the meeting. No explanation was available for the President's absence.

The meeting has put forward a number of issues to discuss, covering topics such as sharing information on the outlook of Asia, Europe and the world economy, the prospect of strengthening financial corporation between the two continents and combating the financing of terrorism and money-laundering activities.

Regarding financial corporation, while Europe is planning to establish an integrated single financial market by 2005, Asia has just begun to develop its regional bond market as an important financial investment tool.

"We're hoping to learn from the European experience on how to develop a strong and liquid bond market," Dorodjatun said.

Only recently, Asia launched the Asia Bond Fund, worth US$1 billion, to be used to buy out bonds issued by Asian countries as part of those efforts (to strengthen the bond market), he said.

The participants will wrap up their meeting today and are expected to formulate a ministerial declaration on the issues discussed.

For Indonesia, however, the meeting will be of a greater importance, as the government could use the opportunity to strengthen its bilateral relationships with the participating countries -- many of which are its main donors -- in light of its scheduled graduation in December from the current program with the International Monetary Fund (IMF).

Without the IMF, Indonesia will be forced to turn to bilateral cooperation in order to offset its financing needs, especially to help cover the deficit in the state budget.

Although the IMF's funds are never intended for budget purposes as it can only be used as reserves, the absence of the IMF would mean that Indonesia will lose its foreign debts rescheduling scheme. The government had traditionally obtained the rescheduling facility from the Paris Club of creditor nations, which is willing to provide debt relief only if the country remains under the IMF's program.

The absence of such rescheduling, which some analysts estimate at around $3 billion, may further increase the budget deficit. The bilateral commitments Indonesia is seeking are meant to help plug that gap.

The Japanese government, the country's number one donor, welcomed Indonesia's graduation from the IMF, saying that it would send signals that the country was moving towards recovery. However, it also urged Indonesia to maintain good synergy and communication with the IMF after the current program ends.

"We are going to continue to support Indonesia even after it graduates from the IMF program, but we also want the country to maintain good communication with the IMF after the program. It's important to maintain the very good environment between Indonesia and the IMF; it's good for the investment climate," Japanese finance minister Masajuro Shiokawa told reporters on the sidelines of the meeting.

Dorodjatun believes that the country could secure deficit financing without the IMF through bilateral pledges, especially from Japan, the World Bank and the Asian Development Bank.

"All three have been very supportive of Indonesia, and I think they will remain so, post-IMF program. From the three alone, I believe it (the commitment) will make up more than 70 percent of our annual deficit."

ASEM, which was first held in Thailand in 1996, is a biennial informal meeting of heads of state and government of 10 Asian countries and 16 EU member states, including the president of the European Commission.