Government likely to be grilled at CGI meeting

Government likely to be grilled at CGI meeting

By Reiner S

JAKARTA (JP): The government will meet on Monday with donors
grouped in the Consultative Group on Indonesia (CGI) in a bid to
maintain crucial financial support to help the ailing economy.

The international donors will likely intensely quiz the
government during the two-day meeting here over the
implementation of various reform programs promised last year, and
the latest development in the economy, particularly concerns over
the state budget deficit.

The meeting, to be attended by local representatives of the
donors, is being held at a time when embattled President
Abdurrahman Wahid faces the prospect of being impeached over
alleged financial impropriety.

"The government must give a convincing explanation to win the
support of the CGI," prominent economist Sri Mulyani said. "Solid
support from the International Monetary Fund is also crucial,"
she added.

The CGI groups multilateral donors and major countries, of
which the largest creditors are the World Bank, the Asian
Development Bank (ADB) and Japan.

Coordinating Minister for the Economy Rizal Ramli said that
Monday's meeting would basically focus on reviewing the
implementation of various reform programs promised by the
government last October in Tokyo and on future measures to carry
out the agreed programs.

The donors will then reconvene in November, possibly in
Yogyakarta, to decide on the size of their new loan pledges help
finance the 2002 state budget.

The donors pledged about US$4.8 billion in Tokyo last year to
help finance the current 2001 state budget deficit.

It is not clear whether the donors will delay the disbursement
of the pledged loan if they are dissatisfied with the result of
this week's meeting, but observers said that such a prospect was
possible.

The donors are expected to review government policies and
strategies, particularly on poverty alleviation, illegal logging
and good corporate governance.

In a bid to win the hearts of the CGI members, the government
recently set up a special poverty reduction agency in charge of
developing operational strategies for poverty alleviation. The
agency is headed by noted agronomist H.S. Dillon and is
supervised by an interministerial committee chaired by Vice
President Megawati Soekarnoputri.

"If we don't make preparations, this will become a serious
problem at the pre-CGI meeting," Rizal said, referring to the
two-day meeting.

IMF Asia Pacific deputy director Anoop Singh, who is currently
here to head a team in reviewing Indonesia reform programs, is
expected to brief the donors on the implementation of the fund-
sponsored economic reform program.

The World Bank and ADB have insisted that future financial
support for the country will depend on whether the government can
win the support of the IMF.

The main focus of the current talks between the government and
the IMF is the revision of the 2001 state budget amid the
weakening of the rupiah and rising domestic interest rates.

The government earlier said that the current state budget
deficit could exceed 5 percent of gross domestic product due to
the weakening rupiah and increasing interest rates compared to
the initial projection of 3.7 percent of GDP. This means that the
government would have to come up with additional funding of
approximately Rp 35 trillion ($3.5 billion).

But a finance ministry senior official surprisingly said on
Sunday that the government would maintain the deficit at the
initial level of 3.7 percent of GDP. This was confirmed by Rizal.

No detailed measures to achieve the target have been
disclosed, except that the government plans to raise income tax
revenue, accelerate the privatization program and asset sales,
cut spending and ask resource-rich provinces to help finance
central government programs.

Sri, however, said that some of the measures were nearly
impossible to realize, particularly raising tax revenues amid the
current economic difficulties.

Sri said that the unclear measures to solve the deficit
problem had contributed to Friday's drop in the exchange rate of
the rupiah to near the Rp 12,000 per U.S. dollar level.

"They (the donors) will quiz the government over this issue,"
she said.

"If (finance minister) Prijadi can come up with a credible
explanation, they will give their support. If the proposal is not
convincing, they will stay away," said Sri, a senior economist at
the prestigious University of Indonesia.