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)