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)