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.