Bali blast forces the delay of CGI talks

Bali blast forces the delay of CGI talks

Berni K. Moestafa, The Jakarta Post, Jakarta

The government and foreign creditor countries grouped under
the Consultative Group on Indonesia (CGI) have delayed a meeting
to discuss funding for the 2003 state budget, from October to
early next year in order to assess the impact of the Bali
terrorist strikes.

"The additional time prior to the CGI meeting would enable a
considered evaluation of the consequences for Indonesia's economy
and budget in light of the Bali attacks," a joint statement by
the Coordinating Ministry for the Economy and the World Bank said
on Wednesday.

The meeting was scheduled for October 28 and 29 in Yogyakarta.
The government had initially considered moving the meeting to
Jakarta if CGI members raised security concerns.

At least 182 people lost their lives when a massive bomb tore
through a nightclub favored by foreign tourists in Bali last
Saturday.

Coordinating Minister for the Economy Dorodjatun Kuntjoro-
Jakti said the delay was "only appropriate in the memory of
Indonesians, Australians and other nationals that died in Bali."

The upcoming 12th annual CGI meeting will discuss the amount
of loans creditors will pledge to help cover a shortfall in
Indonesia's 2003 state budget.

The 2003 budget draft outlines a deficit of around Rp 26.26
trillion (about US$2.8 billion) compared to an estimated Rp 42.13
trillion this year.

Indonesia is targeting less aid from the CGI in line with its
shrinking budget deficit and plans to attain a balanced budget by
2004.

This policy is also necessary to allow the government to
unload its massive debts of around $134 billion without piling up
more debt than it can repay.

The statement said the meeting was now scheduled for shortly
after the New Year following the Christmas and Ramadhan holiday
seasons.

The delay however comes as Indonesia faces intensified
pressure to crack down on terrorism after a year of foot dragging
in the U.S.-led war on terror.

Bali hammered home a violent message to the government that it
cannot afford to turn a blind eye to terrorist threats when the
country's fragile economy is vulnerable to shock.

The subsequent blow to the tourism sector undermines economic
growth while foreign investors are likely to shun Indonesia until
the country is deemed safer.

Economists have slashed forecasts for this year's growth and
have warned of a lackluster economy next year unless the
government restores business confidence by getting tough with
terrorism.

Many of the dead nationals in Bali belong to CGI member
countries who had long warned Indonesia of its terrorism threat.

Against this backdrop, the postponed meeting could stir
uncertainty about the fate of the 2003 state budget, although few
expect creditors to deny Indonesia their loans because of Bali.

Indeed, before Bali, the main hurdle had been the legislature
falling behind schedule in pass the government's proposed 2003
budget into law, without which budget assumptions could still
change and thus hamper talks with the CGI.

The government and CGI did agree to meet informally at the end
of October to assess loans for the 2003 budget and seek steps to
maintain the momentum of reforms.

"In these difficult circumstances, it is more important than
ever that Indonesia sustains its recent macroeconomic gains and
moves forward with structural reforms," said World Bank country
director Andrew Steer.

The CGI loans are tied to Indonesia's economic reform
progress, covering, among other things, macroeconomic stability
and weeding out inefficiencies like corruption and state
monopolies.

Economists said Indonesia was making headway in its economy
but fell short of needed structural reforms like corruption
issues.

With the Bali attack, they also said the government might need
to adjust some of its economic assumptions which form the basis
for the CGI loans.

"We need time to assess the situation and to calm down and for
that purpose alone we may reconsider the timing (of the CGI
meeting), said Hiroshi Ogushi, first secretary on financial
affairs at the Japanese embassy.

Japan, the World Bank and the Asian Development Bank (ADB)
account for most of the CGI's loans.

On Tuesday, a senior official at the International Monetary
Fund (IMF) indicated Indonesia may need to adjust its policies.

He did not rule out the possibility of changes to targets
under the IMF led reforms programs in light of the Bali fallout.