CGI pledges $2.8b for 2004

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.