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.