China, RI sign first ever loan agreement

China, RI sign first ever loan agreement

Dadan Wijaksana, The Jakarta Post, Jakarta

China agreed on Tuesday to lend Indonesia US$400 million, the
first time it has ever done so, to help finance the development
of several Indonesian infrastructure projects.

It is unclear what the loan, the signing of which was
witnessed by Minister of Finance Boediono and China's Ambassador
to Indonesia Lu Shu Min, will be used for.

However, an official at the National Development Planning
Agency (Bappenas) indicated that part of the funds might be used
to finance electricity projects in Sumatra, the development of
railways by state-owned rail company PT Kereta Api Indonesia
(KAI) in Java, or to import buses for public transportation.

"The funds may be used for the construction of a power plant
in (North Sumatra's town of) Sibolga, or a double-track train
railway between Cirebon and Kroya, or the procurement of 1,500
buses. We'll see," Koensatwanto Inpasihar said.

He said this was China's first loan facility for Indonesia.

"Previously, China has pledged financial support to Indonesia,
but that was in the form of grants. So, as far as the loan
commitment is concerned, the recent signing was the first time,"
he said, adding that the grants amounted to about 50 million
yuan.

The loan itself has a 15-year tenor including a seven-year
grace period, with the annual interest standing at three-percent.

The commitment has come at a time when the cash-strapped
government is desperately seeking support from foreign lenders,
especially now that economic fall-out seems inevitable following
the Bali bombings.

The deal is only a month away from when the government is
expected to ask for significant loans from its major creditor
nations under the Consultative Group on Indonesia (CGI).

The CGI groups together the country's 32 major creditors,
including 21 countries and 11 multilateral lenders such as the
World Bank and the Asian Development Bank (ADB).

China is not a member of the CGI.

In the upcoming CGI meeting, scheduled for January, Indonesia
is seeking Rp 29 trillion (about $3.1 billion) in new loans from
the creditors.

That includes a Rp 10.6 trillion stimulus package planned to
be injected into the economy as part of the government's efforts
to ease the impact of the Bali attack.

Through the package, the government plans to stimulate the
economy by increasing development spending on crucial projects
throughout the country, in hopes of keeping the economic wheels
moving, thereby creating more jobs.

Based on the state budget, Rp 65.1 trillion has been set aside
for development spending next year.

Boediono said the signing of the loan deal with China was a
follow-up to a visit by President Megawati Soekarnoputri to China
last March.

But what was more important, he said, was the loan reflected
China's intention to help Indonesia's economy recover from the
prolonged crisis.