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.