Fri, 05 Dec 2003

Govt urged to seek lenient terms from CGI

Dadan Wijaksana, The Jakarta Post, Jakarta

Less than a week before the annual meeting of the Consultative Group on Indonesia (CGI) takes place, the government is being urged to be tougher on the group and refrain from bowing to its burdensome loan requirements.

As every cent of the loans will be repaid, Indonesia has to be able to stand as an equal partner, and thus deserves a stronger bargaining position with the country's largest lenders grouping, said economists Rizal Ramli and Revrisond Baswir.

Both agreed that Indonesia had always been on the weaker side against the foreign lenders and was helpless in receiving the tough demands attached to the loans.

"In my opinion, there has to be a reform or a repositioning in the government's relationship with the CGI," Rizal told a seminar here on Thursday, held ahead of the CGI's two-day convention. The convention, to start on Dec. 10, will determine the group's loan commitments to Indonesia to help it cover the 2004 state budget deficit.

So far, he continued, CGI had been acting as a sort of cartel in which Indonesia, with its weak bargaining position, had barely a say in the loan negotiating process.

"They have become so because the government did not stand up and fight in seeking softer terms and conditions," Rizal said, adding that as a result, Indonesia, for example, had to rush to deliberate several laws that should not have been prioritized.

The former finance minister did not specify which laws he was referring to.

The CGI loan is often attached to the implementation of a number of reform programs.

Revrisond, the outspoken economist from University of Gadjah Mada, even said the government should review the role of CGI to determine whether its presence was still beneficial to the country.

Not only does the presence of CGI mean an increase in the country's debt burden, its effectiveness has also been questioned in light of various reports suggesting massive embezzlement in CGI's loans, thus reducing their beneficial impact.

And the fact that the donors have continued to disburse the loans, despite such a report, should be evidence enough that the CGI has been taking advantage of Indonesia, he said.

If these issues were not addressed, Revrisond said, "I suggest CGI be dissolved. We can seek bilateral commitments as a replacement."

The two economists' concerns over the effectiveness of the CGI were the latest such remarks to come to the surface. Similar calls had earlier been on the rise, following reports of leakage in the CGI's loans.

The National Development Planning Board (Bappenas) has said that the loans were prone to corruption by officials.

It estimated that at least 20 percent of the CGI loans intended to finance various infrastructure projects each year, have been abused during the implementation stage of the projects. These abuses occurred through corruption, by the marking up of project costs.

Unconfirmed reports previously suggested that around 30 percent of international loans fell victim to corruption during the 32-year rule of then-president Soeharto.

The CGI, which groups 30 bilateral and multilateral donors, pledged early this year some US$2.7 billion in loans to help finance the 2003 state budget deficit.

The funding from the CGI, for next year's budget deficit financing, remains unclear, but the 2004 state budget is targeted to receive some Rp 28.2 trillion in foreign loans.