CGI pledges $2.8b for 2004
Dadan Wijaksana, The Jakarta Post, Jakarta
The Consultative Group on Indonesia (CGI) pledged on Thursday to provide US$2.8 billion in loans and grants for next year's state budget, but renewed calls to speed up reform and improve the investment climate.
The amount was higher than the $2.7 billion promised for the current 2003 state budget, partly because of higher spending for debt repayment, as the expiration of the International Monetary Fund program later this month deprives the country of a debt relief facility from the Paris Club of creditor nations.
In addition to the figure donors set aside $600 million in the form of credit exports and technical assistance to regional governments and non-governmental organizations (NGOs). That brings the total loan pledge from the CGI to $3.4 billion.
During the two-day CGI meeting, while praising the country's macroeconomic and monetary stability, donors also stressed an urgent need for the country to tackle corruption, which hampers the influx of investment and economic growth, putting a brake on poverty eradication drives.
As the must-take-action targets had been laid down in the White Paper (a document containing the country's economic reform plan until next year), the government now had to ensure the reform targets were implemented, said the World Bank, which chaired the meeting.
"If the government can deliver on its commitments it has made ... then growth in Indonesia is set to take off," World Bank East Asia and the Pacific vice president Jemal-ud-in Kassum said in a written statement.
"But significant slippage, especially in improving the investment climate and governance, would put emerging gains in market confidence at risk," he warned.
The Asian Development Bank (ADB), which provided around $900 million of the loan pledges, also urged intensified action to reduce corruption to boost investment.
"Weak governance has acted as a major barrier to sound development in Indonesia, nurturing corruption and rent-seeking and weakening the impact and effectiveness of development projects," ADB Southeast Asia deputy director Shamshad Akhtar said.
Indonesia badly needs fresh investment in order to generate higher economic growth. Foreign direct investment (FDI) approvals for instance, are currently at only a quarter of the pre-economic crisis levels.
"To achieve higher growth, Indonesia should shift its economy from consumption-led to investment-led growth and for that, improving the investment climate is a matter of urgency," said Japanese Ambassador Yutaka Iimura.
The Japanese government contributed $660 million in the CGI loan pledge. On top of that, it would also set aside $220 million in export credit, bringing the total lending from Japan to $880 million.
The CGI has been one of the crucial financing sources the country has always turned to to help it plug the annual state budget deficit.
Under the 2004 state budget, the government set its sights on proceeds to finance the deficit from; domestic and global bonds sales; privatization; sales of banks and assets under the Indonesian Bank Restructuring Agency (IBRA); bank financing; and loans from foreign lenders -- mostly the CGI.
The budget has targeted the deficit at Rp 24.4 trillion, or 1.2 percent of the country's gross domestic product (GDP), as compared to the estimated Rp 34.4 trillion (1.8 percent) deficit for this year.
Of the total CGI loan pledge, the disbursement of $1 billion will depend on progress in implementing economic reforms.