CGI pledges $5.2b in new aid to RI
JAKARTA (JP): The World Bank-chaired Consultative Group for Indonesia (CGI) yesterday committed US$5.20 billion in new loans and grants to Indonesia for the 1994/1995 fiscal year, 1.7 percent higher than last year.
Gautam Kaji, World Bank Vice President for East Asia and the Pacific, told a news conference at the end of the CGI's two-day meeting in Paris yesterday that Japan has surpassed the World Bank with its pledge of $1.76 billion, up from last year's commitment of $1.44 billion. The World Bank promised $1.50 billion against $1.60 billion last year, and the Asian Development Bank (ADB) $1.10 billion compared to $1.20 billion last year.
Yesterday's joint briefing was also attended by Coordinating Minister for Economy and Finance Saleh Afiff, State Minister of National Development Planning/Chairman of the National Development Planning Board, Ginandjar Kartasasmita, and Governor of Bank Indonesia J. Soedradjad Djiwandono.
A Kompas correspondent reported from Paris yesterday that the increase in CGI's commitments was partly due to creditors' anticipating the possible appreciation of the yen against the U.S. dollar, a situation which causes increased debt repayments.
Kaji, who earlier praised Indonesia's negotiating team for their clear explanations on the country's concerted Sixth Five Year Development Plan (Repelita VI), said that the central messages conveyed by CGI's creditors are the need for Indonesia to maintain its poverty alleviation program, human resources and basic infrastructure development as well as continue its staunch protection of the environment.
Donor countries which made commitments include Germany at $157.41 million, France $140.57 million, Spain 24.51 million, Britain $150.49 million and the United States $89.60 million
Australia pledged $47.66 million, Canada $25.33 million, Switzerland $23.41 million, South Korea $9.56 million, New Zealand $3.03 million and Finland $0.99 million, in addition to Japan's $1.76 billion.
Multilateral and international organizations which have also made pledges include the Nordic Investment Bank $35 million, 10 United Nations agencies $50.50 million, the Islamic Development Bank $65 million, International Fund for Agricultural Development (IFAD) $26.07 million, United Nations International Children's Fund (Unicef) $14 million, EIB $54.89 million, on top of the World Bank's $1.50 billion and ADB's $1.10 billion.
The fast-disbursement aid can be used for local financing, meanwhile declined to $200 million compared to $325 million last year.
"Japan is the single country among CGI's creditors which pledged $200 million for fast-disbursement aid," Kaji said. Japan's loans under the CGI umbrella usually cover one-third of the total loans pledged by other CGI members. Last year the U.S. joined Japan in pledging $25 million in fast-disbursement aid.
Japan
Deputy to Japan's ambassador to Indonesia, Minister Zenji Kaminaga, said here yesterday that Japan's loans for the sector program this year will focus on preventing possible increases in Indonesia's current account deficit as well as developing small- scale projects, including education, health, social welfare, human settlement, and water resources.
Hiroshi Kirabayashi, heading the Japanese delegation, said that the CGI's forum should provide sound momentum for Indonesia to promote cooperation with donor countries to maintain its sustainable development in economic and social fields.
"Through such a forum, Indonesia can be a good model for other countries in tapping economic cooperation," he added.
During the meeting, Japan proposed four key strategic policies for Indonesia to sustain its economy, he said.
It suggested that Indonesia consistently stabilize its macro- economic policy under the prudent management of debts, create good governance and improve the regional infrastructures under the poverty reduction campaign.
Afiff said that the delegations endorsed Indonesia's economic development policy as prescribed in its continued five-year development plans (Repelita), but urged the Indonesian government to keep improving its prudent macro-economic management as well as secure offshore loans to be used for development projects.
He conceded that the World Bank earlier gave hints that Indonesia's high incremental capital output ratio (ICOR) was still a key factor to the soft growth in Indonesia's economy. The ratio is a measure of the amount of investment required to produce one unit of value added (measured in currency).
ICOR
Responding to the World Bank's statement on ICOR, Afiff earlier told Indonesian reporters that it was because Indonesia's long-term development programs emphasize infrastructure development which does not show immediate profits.
But Afiff acknowledged that the high level of ICOR is partly due to inefficiency and misallocation of public investments.
Noted Indonesian economist Sumitro Djojohadikusumo warned earlier this year that around 30 percent of the government's spending was wasted through inefficiency or malfeasance.
Sumitro estimated that the country's ICOR, which is far higher than those of other ASEAN countries, ranged between four to five percent. ICOR of other ASEAN countries are between three and 3.5 percent.
Afiff meanwhile assured the creditors that the Indonesian government is now in a strong position to cope with such inefficiency.
He said that private sectors have been also asked to help improve their aid management as part of their efforts to reduce Indonesia's ICOR level.
"We therefore expect that private business sectors will be able to promote growth-oriented centers while the government develops areas which have less economic return," he added.
According to the World Bank, Indonesia will be able to increase its economic growth to eight percent per year if it can reduce its ICOR level to three percent.
Afiff was optimistic that Indonesia's economic growth could even reach nine percent, but that it should concentrate all its resources on growth-oriented centers. However, he reminded that it would offset the development of less-developed areas. (fhp)