CGI review positive ahead of Paris Club meeting

Berni K. Moestafa, The Jakarta Post, Jakarta

A meeting of representatives from the Consultative Group on Indonesia (CGI) painted an upbeat picture of the Indonesian economy, which may well add oil to the machinery during debt rescheduling talks with the Paris Club of creditor nations.

However, the CGI also called for more concrete reform actions over the next few months to bolster confidence in the country's economy and the government, the World Bank said in a statement.

It said Wednesday's CGI meeting was a quarterly review on the development issues since the last CGI meeting in November 2001.

On the macroeconomic side, World Bank Country Director Mark Baird said that donor countries were thus far satisfied.

The World Bank is a key member of the CGI, which groups together Indonesia's main foreign creditors. The same members also sit in the Paris Club of Indonesia's sovereign creditors.

Securing a positive note on macroeconomic stability increases chances for Indonesia to receive lighter rescheduling terms for its debts during the Paris Club meeting.

Unlike Pakistan, whose role in supporting the U.S.-led war in Afghanistan had earned it a generous Paris Club deal according to analysts, Indonesia's position is seen as more difficult.

The government foot dragging on a number of reform areas such as justice and forestry, have been a constant hindrance to talks at both the CGI and the Paris Club.

Another fallout from the slow reforms, is that investors shy away from Indonesia as they seek security over their investments.

The World Bank said progress was underway, but added that CGI donor countries agreed that concrete actions were still needed.

"These include the establishment of an independent anti- corruption commission, enactment of a robust anti-money laundering law and implementation of more pro-poor regional transfer mechanism," the bank said.

While slow reforms may undermine Indonesia's position at the Paris Club, strong support so far from the International Monetary Fund (IMF) may be a stronger determinant.

To a large extent, the Paris Club makes its decisions based on inputs from the IMF.

"Macroeconomic stability is on a sounder footing," said the IMF senior representative for Indonesia, David C. Nellor.

"Progress has also been made in structural reforms, including the reduction in subsidies, starting the privatization program and embarking on a sound process for the sale of BCA," he said.

The Paris Club meeting is slated for the first week of April.

Running at a deficit of some Rp 42 trillion (about US$4 billion) this year, the state budget is unlikely to survive without a Paris Club deal.

The government has yet to decide how debt it wanted to rescheduled. This year's budget assumed Rp 36.77 trillion in both debt rescheduling and new program loans.

Baird further said that better macroeconomic performance gave the government breathing room to address longer term issues.

These, he said, concerned poverty reduction programs as well as overhauling the justice sector.