Debtor-creditor talks

Debtor-creditor talks

Different from most meetings between borrowers and their
creditors, the most significant aspect of the annual conference
of Indonesia's creditor consortium, the Consultative Group on
Indonesia (CGI), is not the amount of new borrowings pledged, but
rather the rigorous policy dialogs.

That trend has become increasingly apparent since the early
1990s as net official capital inflows have become negative in
that the annual loan disbursements have been smaller than debt
installments and interest payments. For fiscal year 1995-1996,
for example, the CGI committed US$5.36 billion, but official debt
repayments and service payments for that year are estimated at
$7.37 billion. The proportional role of foreign aid in the state
budget has also been declining steadily as the tax effort has
consistently increased domestic revenues.

Of no less importance is the fact that the government has
built up a high level reputation of being a good debtor.
Indonesia deserves a high commendation indeed. That is the main
reason why the government has always got what it asks for
annually from the creditor group.

The importance of new loan commitments, therefore, often lies
more in their impact on Indonesia's credibility and in their
meaning as a vote of confidence in the long-term prospects of the
country's economy and as an endorsement of the country's
macroeconomic management.

But it is not our intention here to simply indulge in
reiterating the praise showered on Indonesia by its creditors
during the two-day CGI meeting in Paris that ended on Wednesday.
Since development is an ongoing process and the challenges a
nation faces increase along with its economic expansion, we must
instead pay more attention to the suggestions or appeals the
creditors made, however subtly this advice was phrased.

The strongest creditors' message calls for: good and effective
governance, a more vigorous process of democratization, better
protection of human rights, efficiency, transparency and
accountability in the use of foreign aid, the abolishment of
restrictions on domestic and foreign trade, as well as the
establishment of clear, competitive regulatory frameworks for the
private sector.

Those suggestions are by no means new. In fact, almost all of
them are being implemented. The problem, though, is that the
creditors, like most private-sector analysts in Indonesia itself,
see the pace of implementation as much slower than expected.
Worse still, the government is often swayed by short-term
objectives to take measures that are contrary to the reform
agenda.

The government, despite its internationally-recognized
achievements, should accept those suggestions as well-intended
advice from friends who are greatly concerned about the long-term
sustainability of our development.

We should also realize that economic factors are not the only
yardsticks used by the creditors to assess the government's
performance. Because the aid provided by the sovereign lenders,
which usually put up 50 percent of the total loans committed
under the CGI, is financed by taxpayers, these government donors
must pay serious attention to the common concerns among their
taxpayers in order to be able to continue their foreign aid
programs. And the common concerns among the taxpayers -- in fact
among the majority of the international community -- are related
to good and effective governance and the protection of human
rights and environments.

We are encouraged, though, that the other policy suggestions
on the economy made by the creditors are precisely the agenda of
our bureaucratic and economic reforms.

We think the government has long fully understood the message
being sent by such suggestions. The only difference may lie in
the views of the government and the creditors regarding the pace
and the scale of priority for their implementation.

But in contemplating the suggestions, it is worthwhile to
reaffirm the point we have often stressed in this column that
despite its strong economic fundamentals, Indonesia remains
highly vulnerable to many potential external disturbances. That
means the government has little room for policy-making
flexibility. Even a small mistake could cause a devastating
impact on the overall stability we have painstakingly guarded so
far. Further down the line, that reality calls for a more
vigorous implementation of the policy suggestions.