Government says unused aid hard to shift

JAKARTA (JP): A government plan to seek donors' approval to speed up the disbursement of some US$17 billion in unused foreign aid pledged several years ago may be difficult to realize, according to a senior government official who participated in negotiations for the assistance.

The official said that requirements attached to the loans, which are mainly intended for infrastructure and project development, may be difficult to satisfy, particularly amid the current economic woes, coupled with ongoing social and political instability.

"According to a study, the actual disbursement could take up to two years," the official said.

Coordinating Minister for the Economy Rizal Ramli said on Thursday that the government would attempt to accelerate disbursement of the unused foreign aid, which would provide much needed fiscal stimulus to the economy this year.

Rizal said that the country had been paying commitment fees of between 0.7 percent and 1 percent for the pledged loans.

Indonesia's foreign aid has primarily come from donor countries and institutions grouped in the so-called Consultative Group on Indonesia (CGI), which is coordinated by the World Bank.

The senior government official said, however, that Indonesia must provide a corresponding rupiah contribution in any project financed by the foreign loans.

The official said that prior to the economic crisis, which hit the country in the middle of 1997, the rupiah portion could reach 40 percent, although several donors, including the World Bank, had now agreed to lower the ratio to around 20 percent.

The official said that, because of the high local funding component required, the government had not utilized all of the loans pledged in the past.

"It is still a question mark as to whether Rizal can come up with the local funding component," the official said.

The official said that another tough requirement was the procurement conditions, including the selection process for consulting services, which could take "a very long time".

"But technically this can be accelerated," the official said.

He explained that the most difficult task was providing land for project development. "I think this will be the most crucial and difficult task," adding that, unlike in the past, the World Bank now insisted that the government first provide land before a loan could be disbursed.

Amid the current political and social problems gripping the country it will prove difficult convincing international donors that land has been secured for a particular project. Confidence in the acquisition of land has been undermined following several land ownership disputes recently, some involving projects undertaken by foreign investors.

Another problem will arise from the new fiscal decentralization policy, creating a question mark over responsibility for repayment of the foreign loans: the central government or regional government.

But Rizal said that the government would examine different approaches in order to meet the requirements, as well as negotiating less demanding requirements with donors.

"We'll ask that the local funding requirement be lowered to below 20 percent," he said.

He added that the government would also request the House of Representatives' approval to use surplus funds from the previous state budget, amounting to Rp 3 trillion, as the government's contribution to funded projects.

Rizal dismissed suggestions that plans to speed up the aid disbursement was a sign that the 2001 state budget was in deep trouble amid the current weakening of the rupiah and rising domestic interest rates.

The rupiah dropped to a 30-month low of around Rp 11,500 per U.S. dollar recently, in response to worsening relations with the International Monetary Fund (IMF) and continuing political instability.

The rupiah is currently hovering at around Rp 10,400 per dollar, compared to the state budget assumption of Rp 7,800 per dollar for the 2001 fiscal year.

The weakening rupiah has forced the central bank to push the interest rate of one-month Bank Indonesia SBI promissory notes to 15.58 percent this week, compared to 11 percent projected in the state budget.

The IMF has already warned of the serious impact that the rupiah's fall combined with rising interest rates will have on the state budget. Despite past tension, however, there have been recent indications that relations between the government and the IMF are improving. (rei)