Donors postpone meeting

Donors postpone meeting

The joint decision by the Indonesian government and its
international donor community to postpone the 12th meeting of the
Consultative Group on Indonesia (CGI), originally scheduled for
Oct. 28-29 in Yogyakarta, to early next year, is fully
understandable in light of the horrifying Oct. 12 bomb attack in
Bali.

Both parties need to concentrate on dealing with the immediate
aftermath of the tragedy -- which also killed many citizens from
CGI countries -- and to evaluate the short- and medium-term
implications of the terror bomb on Indonesia's economy.

Reevaluation is especially necessary because the upcoming CGI
conference, which was originally designed only to decide on
Indonesia's external financing needs for the 2003 state budget,
will also have to consider any anticipated additional needs to
address the impact of the bomb attack.

First of all, the basic assumptions used for the 2003 draft
budget, notably the 5 percent economic growth, Rp 8,700 average
exchange rate against the dollar and 8 percent inflation, may
have to be revised in view of expected worsening macroeconomic
conditions within the next few months.

The Indonesian government also needs more time to assess the
damage and social costs of the Bali attack, both for Bali and
other major tourism-dependent provinces, and evaluate their
implications on tax revenues and consequently on spending plans.

The results of this evaluation will have to be projected not
only against the amount of new loans to be asked for from CGI
donors but also with regard to the composition of their
assistance.

Indonesia may need more quick-disbursement loans and technical
assistance grants, rather than development project loans, to
address the impact of the tragedy on unemployment and its other
social costs.

It is encouraging though that the government and the Jakarta-
based representatives of CGI countries have scheduled an informal
meeting in Jakarta later next week to make an overall review of
the situation in preparations for the formal CGI conference in
January.

Scheduled for 17 days after the bomb attack, the informal
meeting later next week could serve as a timely forum for both
parties to conduct an initial review of the preliminary results
of investigations into the tragedy and their immediate impact on
Indonesia's macroeconomic condition and the likely outlook of the
economy for next year.

Equally important is that the informal meeting will also
assess Indonesia's resoluteness in fighting terrorism and
maintaining security.

We are indeed in very difficult circumstances now. Certainly,
the bomb attack in Bali has increased Indonesia's country risks,
adversely affected the macroeconomic stability and nullified many
of the macroeconomic gains achieved over the last nine months.

Even before the bomb attack, the government had been much
criticized for its lack of leadership and resoluteness to push
through much needed structural reforms, as can be seen from its
failure to deliver banking and corporate reform and an effective
anti-corruption drive to strengthen the judicial framework.

The International Monetary Fund, which is coordinating bailout
programs in the country, has hinted at the need for reviewing
whether changes to Indonesian programs are needed as a result of
the bomb attack in Bali. This might create another delay of the
seventh disbursement of its extended loan facility.

Needless to emphasize that in the midst of these difficult
circumstances it is more imperative now than ever for the
government to accelerate reform measures to recoup the hard-
earned achievements, otherwise the economy will become more
fragile and mired deeper in all kinds of uncertainty.

The government should move more vigorously on much needed
structural measures in the economic sector and justice sector
reforms and on increasing security to restore market confidence
in the country.

And most important for the government, including the House of
Representatives, is to reunite their stance regarding foreign
investors and foreign creditors. Conflicting signals, let alone
hostile statements, will only denigrate Indonesia's image as
perceived by the international community.