Donor country support hinges on reform program

Donor country support hinges on reform program

JAKARTA (JP): The international community will continue to
provide financial support for Indonesia only if the government
consistently implements its reform program within a framework of
sound macroeconomic policy, the Consultative Group on Indonesia
(CGI) asserted on Monday.

The World Bank, which chairs the CGI, said in a statement that
the group was calling for accelerated implementation of both the
corporate and the financial restructuring programs to build up
transparent and healthy institutions.

More than 80 representatives of the CGI donor countries and
institutions met here on Monday to review the performance of the
reform program in Indonesia and assess the impact of
international assistance.

While the meeting was not called to discuss pledges of new
aid, the group recognized the need for strong support from the
donor community and international financial institutions.

"The basic message (of the meeting) is to support the people
of Indonesia. But this comes with a caveat ... the reform
programs must be implemented transparently and efficiently, not
only in the social safety net program but also in other programs,
including the banking and corporate reform programs," said World
Bank Country Director for Indonesia Dennis de Tray at a press
conference.

He explained that Indonesia would need US$9 billion in foreign
assistance to finance its budget deficit in the 1999/2000 fiscal
year starting April, of which $4 billion in project financing has
been secured.

The source for the remaining $5 billion, however, had not been
secured, he added.

"We're still struggling for the $5 billion shortfall," said
Chairman of the National Planning and Development Board
(Bappenas) Boediono, who represented the government in the CGI
meeting.

He said that the year 1999 would remain critical, not because
of the threat of famine or severe inflation, but because of the
potentially explosive social and political conditions, which he
said would worsen if the right steps were not taken.

The government has expressed hopes that the $5 billion loans
would primarily come from the World Bank, the Asian Development
Bank, and Japan.

The Coordinating Minister for Economy, Finance and Industry,
Ginandjar Kartasasmita, last week visited Japan to try to secure
$3 billion from the Miyazawa Plan assistance scheme.

The $30 billion Miyazawa Plan was announced last year by
Japanese Finance Minister Siichi Miyazawa to help revive
economically troubled Southeast Asian countries.

Uncertainties over the government's reform program -- designed
together with the IMF -- had re-emerged recently following House
of Representatives opposition to the costly banking
recapitalization budget proposed by President B.J. Habibie.

The total fund needed for the recapitalization is estimated at
about one-third of gross domestic product, or approximately $35-
40 billion.

The meeting also reviewed a World Bank study on the social
impact of the crisis, which concluded that the effects have been
less dramatic than were earlier estimated.

"People in urban areas are hurting more than those in the
rural areas and people on Java appear to have borne more of the
brunt of the crisis than those on other islands," said Lant
Pritchett who summarized the findings of the study to the
meeting.

The World Bank said the new data on poverty had important
implications for policy makers in designing and adjusting
programs aimed at minimizing the effects of the crisis on the
poor.

Boediono told the CGI meeting that the country's reform
programs had worked well and, as a result, some positive signs
had emerged, including declining inflation and a more stable
currency.

"And there are signs that capital inflow has started to
reappear as shown by the rising U.S. dollar deposits at local
banks," he said. (rei)