Mon, 02 Jun 2003

Government to meet donors at CGI mid-term meeting

Dadan Wijaksana, The Jakarta Post, Jakarta

The government will meet on Monday with representatives of the country's traditional donors here at a mid-term Consultative Group on Indonesia (CGI) meeting to discuss the progress it has made on various economic reforms.

The one-day meeting is a prelude forum, the results of which will provide the basis for donors to decide on a new loan commitment when they convene at the next annual meeting in November.

The CGI, which groups together 21 nations and 11 multilateral lenders, such as the World Bank and the Asian Development Bank (ADB), has been a crucial financial source for the country to help cover the annual state budget deficit.

Additional financing comes from privatization proceeds and the sale of assets under the Indonesian Bank Restructuring Agency (IBRA).

This year, the donors have agreed to provide US$2.7 billion in fresh loans to fill the budget deficit gap estimated at 1.8 percent of gross domestic products (GDP).

Discussion on the country's economic policy and investment climate will be high on the agenda in Monday's meeting. On both topics, the focus would be on the latest developments as well as plans for the coming year, a press statement said.

Despite solid results in stabilizing the country's macroeconomic indicators -- as seen in the declining Bank Indonesia benchmark interest rate and a benign inflation driven by a strong rupiah -- the government has been sluggish in accelerating economic growth, attributed mainly to its failure to lure investments.

With limited efforts in creating a better investment climate, foreign investors have been hard to come by, depriving the economy of its main engine of growth and subsequently resulting in slow progress in reducing poverty.

The modest annual growth rate of 3 to 4 percent during the past couple of years has been insufficient to absorb millions of jobless Indonesians.

A high level of growth of at least 6 percent per annum should be able to create more jobs, thereby lifting more people out of poverty.

The November annual meeting, at which the CGI will assess the financing needs for Indonesia's 2004 state budget, will be of great importance to help instill confidence in foreign investors, particularly as the International Monetary Fund's supervisory role in the implementation of the government's economic reform measures will end as of this year.

Although the IMF's role was never intended to help plug the budget deficit directly, its presence had allowed Indonesia to reschedule huge debts under the Paris Club forum, which bases its economic assessment on Indonesia in line with the IMF.

Without the IMF, experts have predicted the country would lose some $3 billion next year in its debt-rescheduling facility from the Paris Club.