CGI pledges loans, urges govt to rev up reform

CGI pledges loans, urges govt to rev up reform

Dadan Wijaksana, The Jakarta Post, Nusa Dua, Bali

The Consultative Group on Indonesia (CGI) promised to provide the
country with a higher than requested loan facility, but urged the
government to be serious in implementing reform programs to
attract flagging investment.

At the end of a two-day meeting on Wednesday, the grouping of
30 bilateral and multilateral donors agreed to provide US$2.7
billion in fresh loans, higher than the government's request of
$2.65 billion, to help finance the 2003 state budget deficit.

"The investment climate is the most significant obstacle to
accelerating (economic) growth from the recent rather modest
rates, and thus for reducing poverty and vulnerability," said
Jemal-ud-din Kassum, World Bank Vice President for East Asia and
the Pacific region and also the chairman of the CGI forum.

Improving security, strengthening the justice sector, reducing
bureaucracy and red tape, maintaining labor market flexibility,
reducing uncertainties caused by regional autonomy and avoiding a
severe power crisis, are top on the list of things that the
government needs to do.

Foreign direct investment approvals fell to $7.2 billion in
the first 11 months of last year from $8.4 billion in the same
period the previous year. The decline in domestic investments was
even steeper.

The country's economic growth has been largely driven by
domestic consumption since it was hit by the late 1990s economic
crisis. But experts have said the resulting growth rates of less
than 4 percent were not enough to provide sufficient jobs for
some 2.5 million people entering the job market each year. The
country must achieve a pre-crisis growth rate of more than 6
percent. This means that investment and exports must become the
leading engines of growth.

Higher economic growth is crucial to helping reduce the number
of poor people in the country, which last year stood at around 16
percent of the total population of more than 210 million.

The country's traditional foreign donors also demanded that
the government redouble its reform efforts in other areas,
including the judicial system, and curb illegal logging.

"They noted that the continuing weakness of the legal and
judicial system undermined efforts to deal with systemic
corruption, to encourage investment, to deal with illegal logging
and to ensure the basic rights of Indonesians," the World Bank
said in a statement.

The donors asked the government to work hard in these areas,
as hard as it had worked in dealing with terrorism.

The CGI praised the government's response to the Oct. 12
terrorist bombing incidents in Bali that killed some 190 people,
mostly foreign tourists.

The pledged sum is the lowest since the 1998 economic crisis.

"This is good news as it means that Indonesia's need for
foreign budget financing is diminishing," Kassum said.

There has been strong pressure on the government to lessen the
country's dependency on foreign loans.

The CGI loans comprise $1.1 billion in program and project
loans, and grants worth $1.6 billion. Japan, the World Bank and
the Asian Development Bank (ADB) accounted for most of the
pledges.

On top of this, donors will also provide $400 million in
technical assistance, grants to the regions and grants to non-
governmental organizations.

Coordinating Minister for the Economy Dorodjatun Kuntjoro-
Jakti said that the CGI loans would be used to help finance this
year's budget deficit, which is projected at around 1.8 percent
of gross domestic product.

The remaining financing needs would come from the sale of
assets controlled by the Indonesian Bank Restructuring Agency
(IBRA), and privatization proceeds.

Elsewhere, Dorodjatun said that the next CGI meeting was
expected to take place in early November.

Meanwhile, the CGI loan pledge failed to benefit the rupiah.
The local unit ended flat at Rp 8,885 per U.S. dollar on
Wednesday. In fact, the central bank had to intervene in the
market to defend the local unit, dealers said.