Government says unused aid hard to shift

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)