CGI debate loan commitment to Indonesia

CGI debate loan commitment to Indonesia

JAKARTA (JP): The Consultative Group on Indonesia (CGI) began
a two-day meeting in Paris yesterday to decide its loan
commitment to Indonesia for the 1996/97 fiscal year.

Indonesia is seeking at least US$5 billion in financial
assistance from the World Bank-chaired donor group, or at least
the same amount as that provided last year.

Many local economic observers are doubtful, however, that the
creditor group would be able to meet Indonesia's requirement,
given a tighter condition in the world's financial sources.

Coordinating Minister for Finance and Economy Saleh Afiff was
quoted by Antara as saying in Paris that a slight decline in
CGI's loan commitment for this year won't be a big problem.

"The government is prepared to face a possible decline in
CGI's financial commitment," the senior minister told newsmen in
Paris following a consultative meeting between the Indonesian
delegation and CGI members, a routine bilateral gathering held
before the opening of the CGI meeting.

The Indonesian delegation includes Bank Indonesia Governor J.
Soedradjad Djiwandono and State Minister for National Development
Planning Ginandjar Kartasasmita.

Afiff said that Indonesia has a number of alternatives to
offset a possible cut in the number of loans from CGI members,
which comprise 18 creditor countries and five financial
institutions.

According to Afiff, the alternative funding sources include
commercial loans and export credits from international financial
institutions.

He emphasized that any decline in the loan commitment from the
CGI members would not have a serious impact on the country's
economy, which has steadily improved during the last 10 years.

"The current economic fundamentals are much stronger than
those in the past 10 years. So don't worry about a possible drop
in the financial assistance," he was quoted by Antara news agency
as saying.

He said that if there is a drop in CGI's financial assistance,
it won't be resulting from a decline in the donors' confidence in
the Indonesian economy, but more due to the unfavorable
conditions of their economies.

Afiff noted that most creditor countries from Europe are now
under pressure to reduce deficits in their state budgets. Such a
condition could result in a decline of financial assistance to
developing countries such as Indonesia.

In the consultative meeting, the creditors mostly questioned
Indonesia's efforts in dealing with the country's economic
situation, he said.

"They mostly raised questions about measures taken by the
Indonesian government in cooling down the economic overheating,"
he said.

Soedradjad said that the Indonesian economy is now in the
process of cooling down, given the improvement in the country's
macroeconomic indicators.

The inflation rate declined from 9.6 percent in 1994 to 8.64
percent last year, he said, adding that the downward trend in the
inflation rate is continuing.

"We hope the inflation rate will be lower than 8.64 percent
this year," he said.

He said the current account deficit, which is projected to
increase to US$8.7 billion in the 1996/97 fiscal year from $6.9
billion in 1995/96, is still within the safe level.

He acknowledged, however, that the ratio of the current
account deficit against the country's Gross Domestic Product
(GDP) was recorded at 3.3 percent last fiscal year, far higher
than the target of 2 percent.

"But if compared to those of neighboring Malaysia and
Thailand, the Indonesian current account deficit is still much
healthier, despite the increase," he said.

The current account deficits of the two neighboring countries
account for around 8 percent of their GDP, he noted.

The group of creditors provided $5.36 billion in financial aid
to Indonesia last year.

Japan, the largest single creditor, pledged 187.6 billion yen
($2.14 billion at the rate of 87.5 yen per dollar), compared to
176.5 billion yen ($1.67 billion) in 1994.

The second largest creditor, the World Bank, cut its
commitment to $1.2 billion from $1.5 billion in 1994.

Except for the Asian Development Bank, which raised its pledge
to $1.2 billion from $1.1 billion, most other government and
development agency creditors reduced their commitments for the
last fiscal year.

CGI was set up in 1992 after the Inter-Governmental Group on
Indonesia (IGGI), a donor group coordinated by the Dutch
government, was dissolved due to Indonesia's disillusionment with
what it saw as the Netherlands' persistent intervention in
Indonesia's domestic affairs.

CGI groups all the former members of the IGGI, without the
Netherlands, but with five new creditors: South Korea, the Kuwait
Fund for Arab Economic Development, the Saudi Fund for
Development, the Nordic Investment Bank and the Islamic
Development Bank.

IGGI creditor countries comprised Australia, Austria, Belgium,
Canada, Denmark, Finland, France, England, Germany, Italy, Japan,
New Zealand, Norway, Spain, Sweden, Switzerland and the United
States. (hen)