CGI may provide $2.7b in new loans for Indonesia

CGI may provide $2.7b in new loans for Indonesia

The Jakarta Post, Jakarta

The country may obtain some US$2.7 billion in fresh loans from
the Consultative Group on Indonesia (CGI) to help finance next
year's state budget. The amount is the same as that pledged last
year by the donor grouping for the current 2003 budget.

World Bank lead economist Bert Hofman said on Monday the
amount would be within the range $2.3 billion to $3 billion,
which the government planned to request when the CGI held its
two-day annual meeting on Dec. 10.

"We may come out with the same amount as last year (for the
2003 budget)," Hofman told a news briefing when launching the
bank's brief report to the CGI. The bank will chair the upcoming
meeting of the country's traditional donor grouping.

In the report, it was said that next year would pose an uphill
financial challenge for Indonesia in view of the absence of a
special program from the International Monetary Fund (IMF), which
deprives the country of the debt relief facility from the Paris
Club of creditor nations.

The situation leaves Indonesia little choice but to remain
dependent on its usual foreign donors.

"Financing needs will increase in 2004 despite further fiscal
consolidation, as exceptional financing dries up with the end of
the IMF program, and debt service will increase from 31 percent
of revenue in 2003 to 37 percent in 2004," said the report.

The impact from the absence of the Paris Club debt
rescheduling facility alone means that the amortization of public
debt next year is expected to rise by $2.6 billion.

Under the 2004 state budget, the government is setting its
sights on proceeds from bond sales, both domestic and
international; privatization; the sale of banks and assets under
the Indonesian Bank Restructuring Agency; bank financing and
loans from foreign lenders -- mostly the CGI.

The budget has targeted a state budget deficit of Rp 24.4
trillion, or some 1.2 percent of the country's gross domestic
product (GDP), as compared with the estimated Rp 34.4 trillion
(1.8 percent GDP) deficit for this year.

The CGI has been a crucial financing source to which the
country turns to help it plug the annual state budget deficit.

International donors are hoping the next loans will provide an
incentive for the country to remain committed to reform.

The bank said that while praising efforts to restore
macroeconomic stability amid various internal and external
shocks, attempts to improve the investment climate to boost
growth and reduce poverty lagged behind.

The economy -- while expected to grow by about 4 percent this
year amid shocks resulting from the Iraq war, the SARS epidemic
and a bomb attack on a Jakarta hotel -- remains driven largely by
consumption amid weak investment and export performance.

Strong and sustainable economic growth should be supported by
healthy investment growth.

Foreign direct investment (FDI) approvals in the first ten
months of the year stood at $9.3 billion, rising from the same
period of last year but still only a quarter of the precrisis
level, the World Bank report said.

The Bank cited a survey among 1,000 domestic and foreign
companies that highlighted microeconomic instability, policy and
legal uncertainty as well as corruption, as areas that investors
thought needed plenty of improvement to strengthen the investment
climate.