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.