CGI loan provides certainty to state budget

CGI loan provides certainty to state budget

JAKARTA (JP): The US$4.8 billion loan pledged on Wednesday by
Indonesia's traditional donors would have a positive impact on
the economy as it provides certainty to next year's state budget,
experts said.

Economist Pande Raja Silalahi said the loan would help plug
next year's huge state budget deficit estimated at around $6
billion or 3.7 percent of the gross domestic product.

"It is positive for the economy because it provides certainty
to the budget," said Pande Raja Silalahi, an economist at the
leading private think tank, Center for Strategic and
International Studies (CSIS).

Donors grouped in the Consultative Group on Indonesia (CGI)
pledged $4.8 billion in aid for 2001 and planned to provide
another $530 million in technical assistance grants, at the end
of their two-day meeting in Tokyo.

But Pande said that it was still unclear whether the House of
Representatives would agree for the government to take such a
huge foreign loan, particularly amid strong oil prices.

He said that the House might ask the government to take a
smaller foreign loan.

"The country's foreign loans are already huge and they have
now become a big problem," he said.

The government unveiled the draft of the 2001 state budget
with an estimated deficit of around Rp 53 trillion or $7.2
billion based on an exchange rate of Rp 7,300.

The government has said the bulk of the deficit would be
financed by foreign loans, while the remainder would be financed
by the sale of assets held by the Indonesian Bank Restructuring
Agency (IBRA) and the privatization program.

The government assumed an international oil price of $22 per
barrel in the draft budget. But analysts and legislators have
said the assumption was too conservative given that the
international oil price had been hovering at more than $29 per
barrel.

The House and the government are still debating the state
budget draft and are expected to reach a final agreement sometime
in November.

Meanwhile, the CGI's new loan commitment had little impact on
the rupiah or the local stock market.

The announcement of the CGI loan commitment helped lift the
rupiah from an intraday low of Rp 8,950 to end the day at Rp
8,895 but it was still lower than the Rp 8,845 in late trading on
Tuesday.

Dealers said the rupiah remained under pressure due to fears
over uncertainty in the domestic political development,
particularly after the House unveiled its plan to probe into
President Abdurrahman Wahid's possible role in the financial
scandals.

After climbing for two consecutive days, the Jakarta Stock
Exchange composite index ended 0.1 percent lower at 416.948
points.

Separately, former finance minister Bambang Sudibyo welcomed
the success of Coordinating Minister for the Economy Rizal Ramli
and his team in obtaining the CGI loan but questioned the
conditions for the loan.

Bambang said if the conditions were too heavy, the loan would
only cause problems for the economy.

He said that although CGI had always agreed to provide loans
to Indonesia during the past several years, the conditions had
gradually become heavier.

"Before the (1997) economic crisis, the interest rate of the
loan was between 1 percent and 3 percent but now there are donor
countries who are demanding a 5 percent interest rate which is
equal to a commercial loan," he said.

Bambang said that as an alternative to this loan, the
government could push its privatization efforts and the sale of
the IBRA assets.

Most analysts said that with the approval of the new loan, the
government must push its economic restructuring program,
particularly the sale of assets under IBRA.

The government recently delayed a key divestment program
involving the publicly listed Bank Central Asia (BCA) and Bank
Niaga.

The delay had disappointed both the World Bank and the
International Monetary Fund which are providing a separate
multibillion dollar bailout for the country.

IBRA controls assets worth more than Rp 600 trillion. The
assets had been transferred to the agency from the country's
troubled banks and ex-bank owners. (rei)