Atambua issue may hurt RI efforts at CGI meeting

Atambua issue may hurt RI efforts at CGI meeting

By Berni K. Moestafa

JAKARTA (JP): The World Bank (WB) warned on Friday that
improper handling of militias in Atambuwa, East Nusa Tenggara or
West Timor, might hurt Indonesia's efforts to obtain US$4.8
billion in soft loans at next week's meeting of the Consultative
Group on Indonesia (CGI) in Tokyo.

"In the lead up to the Tokyo meeting, a number of donors and
members of civil society have raised concerns about recent
developments in West Timor," visiting WB vice president for East
Asia and the Pacific Jemal-ud-din Kassum said in a press meeting.

Kassum fell short of saying whether donor countries might
actually cut financial aid to Indonesia if the handling of the
militias did not meet the donors' expectation.

He said that Coordinating Minister for Political Security and
Social Affairs Susilo Bambang Yudhoyono had meet representatives
of donor countries in response to their concerns.

The minister, he said, briefed the representatives on the
current actions taken by the government. "Continued progress on
this issue will provide a positive environment for donor
support," he added.

The CGI meeting will be held between Oct. 17 and 18 in Tokyo,
where Indonesia is expecting to receive US$4.8 billion in soft
loans to help lower its gaping budget deficit.

However, last month's Atambua incident in West Timor, where
East Timor militias killed three United Nations workers, has dent
the prospect of continued international support.

The United Nations issued Resolution No. 1319/2000, ordering
Indonesia to disarm and disband the militias while also restoring
law and order in the region.

William Cohen, The United States' Defense Secretary warned of
international isolation that further damaged foreign investors'
confidence in the country.

Kassum, who will chair next week's CGI meeting, cautioned
against eroding market confidence but he said that Indonesia
continued to show signs of recovery.

"Despite jittery markets, nervous investors and fragile
consumer confidence, Indonesia's economy continues to show signs
of recovery," he said.

However, he said that financial markets remained unconvinced
by the developments in the real economy.

Political uncertainties, regional unrest and periodic
outbursts of violence combined with policy slippage on the
structural reform agenda could still derail economic recovery, he
continued.

Speaking to the press at the launching of the World Bank's
Indonesian economic outlook report, Kassum said that in the short
term, restoring confidence was key to accelerating the recovery.

The World Bank released on Friday its Indonesian economic
outlook report to be discussed at the CGI meeting.

According to the report, Indonesia's economic growth had
expanded to beyond a consumption driven base growth, with
investments starting to contribute.

It said that inflation was under control, real wages were
rising again, and that poverty had declined from a punishing peak
of over 23 percent.

The World Bank emphasized the need for visible results in
three key areas: bank and corporate restructuring, a carefully
implemented decentralization, and fiscal consolidation.

"In the medium term, we consider poverty reduction and good
governance -- which are closely interrelated -- as the central
challenges for Indonesia," Kassum said.

The report said that misdirected spending shortchanged poverty
programs, monopolies threatened small businesses and illegal fees
and levies prevented the poor from accessing government services.

"Weak governance hit the poor the hardest," Kassum added.

Separately, Bank Indonesia issued its quarterly report on the
economy, which predicted difficult times ahead.

"Generally the challenges ahead are getting tougher along with
rising pressure on inflation and the weakening of the rupiah,"
BI's report said.

The central bank estimated inflation to rise one percent above
the initial target of between five percent to seven percent.

Although the current inflation rate was still 4.65 percent
below BI's target, a recent decision to hike fuel prices will
likely push the consumer price index up.

The report said that consumption growth, which had been
pushing the recovery so far, had also slowed down.

However, investment activities showed signs of recovery as
seen on climbing imports and a rise in banking credits channeled.

During the second quarter, investment constituted the second
largest contributor to the gross domestic production (GDP), after
exports, the report said.