Economists credit govt policy for higher foreign aid

Economists credit govt policy for higher foreign aid

JAKARTA (JP): Economists said overseas donors' decision to
increase aid to Indonesia reflected international confidence in
Indonesia's economy.

The head of the National Private Banks Association supervisory
board, I Nyoman Moena, said Indonesia had convinced donor
countries and organizations that it could manage the loans
prudently.

"The use of the money will increase the capacity of the
economy in the long run and allow Indonesia to pay off its debts
on time," Moena said.

Moena said the fact that Indonesia had not rescheduled its
debt repayment program in 20 years was influential in convincing
donors to maintain the level of their aid commitments this year.

The governments and multilateral financial institutions that
make up the Consultative Group on Indonesia (CGI) committed
US$5.3 billion in financial aid to Indonesia for the 1997/1998
fiscal year after a two-day meeting in Tokyo which ended
Thursday.

The fresh loan commitment is slightly more than the $5.26
billion pledged by Indonesia's creditor group in 1996/1997.

Nathan Associates economist Ted James was quoted by AFP as
saying the increasing aid commitments to Indonesia by overseas
donors was a stamp of approval for the country's sound economic
policies.

"We expected the CGI to come up with about the same amount of
aid as last year given Indonesia's strong economic policies and
overall good policymaking," James said.

The bulk of the aid came from Japan at $1.87 billion, the
World Bank at $1.5 billion, with the Asian Development Bank
pledging $1.2 billion.

The CGI loans came from 18 countries and 11 multilateral
lending agencies and are expected to be used largely for
infrastructure, human resources and poverty alleviation programs.

The aid group was formed in 1990 to replace the Dutch-chaired
Inter-Governmental Group on Indonesia which Jakarta disbanded
claiming The Hague was using it to pressure Indonesia.

James said Japan's reduction in aid, down from $1.92 billion
in 1996, was "not surprising" given its budget cuts, adding that
it was not because of concerns over Indonesia's national car
policy which Japan disputes.

Japan, along with the United States and the European Union,
has complained to the World Trade Organization over Indonesia's
national car program, which it says flouts international trade
rules.

The so-called national car policy grants exclusive import and
luxury tax breaks to PT Timor Putra Nasional, controlled by
President Soeharto's youngest son Hutomo Mandala Putra, to make a
national car called Timor.

The Ekonit research group's Dendy Kurniawan warned that Japan
would continue to reduce its aid to Indonesia as domestic
sentiment demanded the Japanese government reduce foreign
assistance.

Dendy said Indonesia should reduce its dependence on foreign
assistance by continuing to improve domestic capacity to finance
the country's development needs.

Moena said the government should continue to repay its foreign
debts with high interest rates ahead of schedule to reduce the
burden of servicing debts in the future.

He said the government's prepayment of foreign high interest
debts had bolstered its credibility.

As of last fiscal year, the government had repaid $2.6 billion
in foreign debt ahead of schedule since the 1994/1995 fiscal
year, saving the government $1.45 billion in interest payments.

The minister of finance, Mar'ie Muhammad, said yesterday that
the government would repay another $1 billion this fiscal year.

But Mar'ie did not specify where the government would source
the funds to be used for early debt repayment this year.

So far the government has used its budget surplus and the
proceeds from selling state-owned companies. (rid)