Govt seeks CGI loans to plug deficit

Dadan Wijaksana, The Jakarta Post, Nusa Dua, Bali

The government once again was reduced to begging foreign donors for fresh loans to help finance the state budget despite rising demands for an end to reliance on foreign loans.

Minister of Finance Boediono told the country's traditional foreign donors grouped in the Consultative Group on Indonesia (CGI) that the country would need at least US$2.65 billion to help plug the 2003 state budget deficit.

The two-day 12th annual CGI meeting on the resort island of Bali was opened on Tuesday. The closed-door meetings were taking place under heavy security in the wake of the Oct. 12 terrorist bombing incidents that rocked Bali and killed nearly 200 people.

The World Bank, which is coordinating 21 donor countries and seven multilateral agencies, is expected to announce the new CGI loan pledge on Wednesday.

The government has been facing increasing pressure from various quarters to quickly end the country's dependency on foreign loans as the size of the country's sovereign debt has now grown to an alarming level and will place a great burden on future generations.

The government's foreign debt is currently estimated at about $70 billion.

During the pre-CGI meeting on Sunday in Yogyakarta, hundreds of demonstrators staged a rally to call for an end to CGI loans. The demonstration ended in violence as police fired warning shots and beat protesters to disperse them.

Critics have also argued that much of the foreign loans have been embezzled, particularly during the more than 30 year rule of former authoritarian president Soeharto, thus providing little benefit for the people and the overall economy.

A number of non-governmental organizations (NGOs) have even launched a campaign to push the government to halt debt repayments on the ground that past loans were embezzled and the foreign creditors had not done nothing about it.

There is also now growing pressure for the government not to renew the International Monetary Fund (IMF) loan program when it expires at the end of this year. The Fund has been providing a three-year $5 billion loan facility to finance various reform programs. But critics have said the IMF programs were too harsh, creating great difficulties for the people.

Despite the pressure, the government said that the CGI loans were still crucial to help finance the 2003 state budget deficit projected at 1.8 percent of gross domestic product (GDP), or equal to Rp 34 trillion (about $3.8 billion). The remaining money to finance the deficit will come from the sale of assets under the Indonesian Bank Restructuring Agency (IBRA) and proceeds from privatization of state-owned companies.

The smaller amount of the CGI loans asked for by the government, compared to last year's pledges of around $3.14 billion, is an indication that the government is trying hard to reduce dependency on foreign loans.

Meanwhile, State Minister for National Development Planning Kwik Kian Gie was quoted by Metro TV as saying that under the current situation, the government had no other alternative but to continue asking for CGI loans.

He said that ending dependency on foreign loans could be brought about if the government was serious in curbing rampant corruption here.

He pointed out that the government could gain some Rp 80 trillion in additional tax revenue if it could clean up corruption in the tax sector alone.

Meanwhile, a senior government official told reporters that one of the agendas of the CGI meeting was to discuss the possibility of the country obtaining debt swap deals from the foreign donors as part of the effort to reduce the country's debt burden.

Kunsatwanto, secretary in the Office of the State Minister for National Development Planning, said that the donors would assess the recent debt-to-education swap agreement between Indonesia and Germany, under which the latter would allow Indonesia not to pay some 50 million deutsche marks in loans on condition that an equal amount was spent on developing the education sector here.