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.