Donors pledge $4.7 billion in loans

JAKARTA (JP): The country's major donors in the Consultative Group on Indonesia (CGI) demonstrated their full support for President Abdurrahman Wahid's administration on Wednesday by pledging some US$4.7 billion in loans, including an unprecedented amount of grants.

The World Bank said in a statement that the new loans would help the democratically elected government tackle the country's various tough challenges, which include banking and corporate restructuring, social justice and rampant corruption.

"There have been many expressions of support from donors," said World Bank vice president for East Asia Jean-Michel Severino at a news conference following the two-day CGI ninth annual meeting, which was held for the first time in Jakarta.

Severino said the donors had been impressed by the government's commitment to fight corruption, create good corporate governance, protect the environment and to press ahead with painful economic reform programs.

The World Bank chaired the donors meeting.

Indonesia earlier said it needed between $4.2 billion and $4.7 billion in loans to help finance the April-December 2000 state budget deficit, which is estimated to be 5 percent of the gross domestic product.

The lending from the CGI was made ahead of the International Monetary Fund's board meeting, scheduled for Friday, which is set to decide on whether to approve Indonesia's economic programs as described in the new letter of intent (LoI).

If the IMF approves the LoI -- as many expect -- the Fund will immediately release part of $5 billion of bail out money, which is to be disbursed over the next three years.

The government welcomed the loan commitment and the international support.

"We stand at a crossroads in the history of Indonesia. We are determined to create a society that is just and which delivers broad-based economic growth to our people," said Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie.

"What we now have achieved is macroeconomic stability -- but that is not enough. Our government has an ambitious agenda that we cannot accomplish alone. But we can begin to move in the right direction -- with the help of all involved -- and look forward to creating a country where the people believe anything is possible."

Kwik said that some $520 million of the total loan commitments were in the form of grants that do not have to be repaid.

"That is a big support in the fight against corruption. This will be financed by grants," he said.

He said the amount of grants was unprecedented and it showed strong international support for the new administration.

Kwik also said the size of the CGI loan reflected the government's determination to lower dependency on foreign loans.

The World Bank said Indonesia's April-December external financing needs of $6.6 billion, which are equivalent to an annualized $8.8 billion, were significantly lower than the $9.8 billion it required in the previous fiscal year -- proof that Indonesia was reducing its dependence on foreign borrowing.

Kwik also acknowledged that part of the $4.7 billion loan commitment was a carryover from last year's $5.9 billion commitment, which was partly canceled following strained relations between the previous government and its donors in the wake of human rights violations in East Timor and the high- profile Bank Bali scandal.

Kwik declined to mention the value of the "repledged loans."

The CGI represents 33 donor countries and international lending institutions.

Japan, which has traditionally been Indonesia's largest creditor, pledged around $1.56 billion, followed by the World Bank with $1.5 billion and the Asian Development Bank with $1.06 billion.

The Netherlands, which resumes its CGI membership this year, is expected to announce its loan commitment on Thursday (today).

Former president Soeharto rejected loans from the Netherlands in 1992 following strong criticism from a visiting Dutch minister.

Meanwhile, Tatsuo Watanabe, deputy director general of the international bureau at Japan's finance ministry, told a separate news conference that Japan's pledge, the highest from the CGI, proved its commitment to extending "as much support as possible to assist Indonesia's self-help efforts".

He also said the Japanese government was prepared to extend its rescheduling facility for Indonesia's sovereign debt at the upcoming meeting of the Paris Club of donors.

"We have no difficulty in dealing with the Paris Club's rescheduling mechanism," Watanabe said. "It's normal practice in the international financial world that countries in difficult situations ask the international community for debt rescheduling arrangements."

The government has said it plans to reschedule around $2.2 billion of debt in the 2000 budget year.

Watanabe, however, refused to mention the amount of debt rescheduling that Japan would grant for Indonesia.

"At the same time, we would like to ask Indonesia to continue its policies for structural reform and to make further efforts to establish transparent and good governance, completely eliminating so-called KKN," Watanabe said, referring to the local acronym for corruption, collusion and nepotism.

Japan's $1.56 billion commitment in the CGI includes a $500 million loan program already pledged under the so-called "New Miyazawa Initiative", and $570 million of loans in the pipeline for ongoing Japanese projects in Indonesia.

The pledge also include $230 million of untied loans that will be disbursed through the Japan Bank for International Cooperation (JIBC).

Japan is also committed to extending $150 million of loans to finance community and local government support sector development programs. In addition, it will also give grants and technical assistance totaling $114 million.

The CGI gathering was held against the backdrop of a disagreement between President Abdurrahman and former Armed Forces commander Gen. Wiranto who now sits in the Cabinet as the coordinating minister for security and political affairs.

Abdurrahman said on Tuesday during his overseas trip that Wiranto must resign to allow investigation into alleged human rights violations in East Timor. But Wiranto fought back, saying that he would not resign until the charges had been proven.

Asked if the CGI discussed the issue, Severino said, "This was not addressed during the CGI." He declined to provide details. (rei/rid)