CGI pledges $5.2b in new aid to RI

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)