CGI backs stimulus package for 2003 economy

Dadan Wijaksana, The Jakarta Post, Jakarta

Indonesia's main creditor countries under the Consultative Group on Indonesia (CGI) said they would support the country with additional loans for a stimulus package next year, ensuring the economy a much-needed reprieve against the impact of the Oct. 12 terrorist strike.

Although no amount has been pledged yet, the World Bank, which will chair the upcoming CGI meeting, said that the loans might rise by "a few hundred million dollars".

The loans would mainly be used to cover an increase in the state budget deficit next year, resulting also from the higher development spending under the stimulus package.

"The deficit will have to be higher for two reasons. One, the revenue will not be so high because growth will go slower, and second, the government rightly wants to inject fiscal stimulus into the economy," World Bank country director to Indonesia Andrew Steer told reporters after an informal meeting between CGI members and the government on Friday.

"So instead of 1.3 percent, we're talking about a range now, say around 1.6 percent to 2 percent of GDP," he said, referring to gross domestic product, which measures the total value of goods and services a country produces every year.

The government previously set the deficit at about Rp 26 trillion (about US$2.8 billion), or 1.3 percent of GDP.

As to what would be required from the CGI, Steer replied: "We've yet to complete the calculations, but I do expect that we would be seeking some additional financing in the order of a few hundred million dollars."

CGI members and the government met for an informal meeting to discuss the economic impact of the blast and ways of helping Bali recover from the subsequent slump in its tourism sector.

Five days after the bombing, the government and CGI members also decided to delay their annual meeting until early next year from late October.

At the upcoming 12th annual meeting, creditor countries are expected to help Indonesia cover its state budget deficit with fresh loans.

Last year, the CGI pledged financial support totaling $3.14 billion in loans and $568 million in grants and technical aid.

As a weaker economy looms large after the Bali bombing, the government returned to the drawing board for a new draft budget after submitting one to the House of Representatives in August.

On Thursday, the government and the House's budget committee agreed on a number of key budget assumptions as well as a stimulus package worth Rp 5.9 trillion.

Economic growth was downgraded to 4 percent from 5 percent and would have been less without the Rp 5.9 trillion in extra spending.

CGI's support should prove decisive for the government to increase development spending on various economic sectors at a time business confidence is hurting badly after the Bali bombing.

Under the initial draft, some Rp 54.5 trillion was set for development spending, which would cover projects in sectors such as construction, agriculture and social welfare.

So far the government relies on foreign loans to cover the budget deficit, which, however, it plans to reduce over time.

Domestic financial resources to cover the deficit are hard to come by, as selling state assets is tough amid a difficult investment climate.

During Friday's meeting, the CGI urged the government to accelerate economic reform programs to restore market confidence.

The CGI groups together the country's 32 major creditors, including 21 countries and 11 multilateral lenders, such as the World Bank and the Asian Development Bank (ADB).

Some of the CGI loans are tied to the country's economic reform progress, covering, among other things, macroeconomic stability and weeding out inefficiencies, such as corruption and state monopolies.