CGI aid 'not enough to revive economy'

JAKARTA (JP): The government has welcomed a new US$7.9 billion aid package pledged by donors as a sign that the international community trusts its ability to mend the country's wrecked economy.

President B.J. Habibie described the huge loans committed by the Consultative Group on Indonesia (CGI) as an international vote of confidence in his 70-day old presidency and government.

But private analysts challenged Habibie's claim and warned that without domestic confidence the huge foreign loans would not have a positive impact on Indonesia's wrecked economy.

Habibie said he was surprised by the amount pledged and claimed that he expected a smaller sum to be granted.

"We are grateful that within 70 days of me ascending to take control... I received a telephone and fax from Paris indicating that confidence has been fully restored," Habibie said yesterday.

But noted economist Anwar Nasution, dean of the University of Indonesia School of Economics, told Antara that donors had agreed to provide Indonesia with more aid not because of the government's performance but because of their sympathy for the country's suffering population.

He said donors were afraid that if a large number of Indonesians fell into poverty then the country could become a regional security menace.

Anwar also warned the government that the new loans would do little to help lift the economy out of the abyss, regardless of their size, without it taking complementary measures on the home front.

Only improvements to the business and investment climate would help expedite Indonesia's economic recovery because that would encourage private funds to reenter the country, he argued.

The head of research at Vicker Ballas Tamara, Noraya Soewarno, said the huge aid commitment was good news but would not immediately restore foreign investors' confidence in the country's battered economy.

"Economic recovery is still a long way off because there are so many wounds to heal," she told The Jakarta Post, citing the high inflation rate, soaring unemployment and escalating prices.

Economist I Nyoman Moena agreed and said the huge loans would not prompt an economic recovery but would only "reduce the pain."

He said the government must exercise financial restraint and discipline, especially in its use of the loans, because it has on occasion shown a propensity to deviate from planned budgets by expanding subsidies. He pointed out that this lack of budgetary discipline had forced the IMF and the government to revise the state budget on a number of occasions.

Moena, a former Bank Indonesia director, called on the central bank to resist outside influence and work hard to control government spending.

Monitor

Didik J. Rachbini from the Institute for Development of Economics and Finance, called on the public to monitor the use of foreign loans and other public funds because the government was not accustomed to working transparently.

"It is difficult to expect the government to work transparently, especially when dealing with these huge funds. They would prefer to work within a closed system which would allow their officials to embezzle public funds in peace," he said.

Faisal Basri, another University of Indonesia economist, added that the government should welcome public monitoring of the use of foreign loans and other public funds.

He suggested the government adopt a service charter like that in Australia, which allows the public to scrutinize officials' wealth and all government spending.

Legislators Indra Bambang Utoyo and Djusril Djusan said that although the government had secured huge new loans, it must still do its best to reduce "unnecessary subsidies" which only benefit certain group of people. They did not specify which subsidies they were referring to.

Businessman Benny Soetrisno, vice chairman of the Indonesian Textile Association, suggested that the government use the funds to revive labor-intensive, natural resource-based or export- oriented industries.

Trimegah Securities' head of research David Chang said the market expected donor countries grouped in the CGI to push Habibie's government to endorse better policies which would eventually restore investor confidence in the country.

Chang told the Post that the new CGI aid would help the beleaguered rupiah, which has dropped by around 80 percent in value against the U.S. dollar since July last year.

However, Anwar Nasution disagreed and said the new funds would not boost the rupiah because although the currency's value was partially determined by the supply of dollars it was more heavily influenced by the loss of domestic confidence in the government.

He said for as long as the government was unable to "tame" opposition forces the rupiah would remain weak. Adding that unfortunately government officials still shunned meeting opposition figureheads. (prb/aly/rid)