Indonesia gets $5.36b in new aid

Indonesia gets $5.36b in new aid

PARIS (Reuter): Indonesia won US$5.36 billion in aid for the next year from donor countries and development agencies yesterday, the World Bank said following a two-day meeting at its Paris office.

The sum is an increase from the $5.2 billion pledged in 1994.

The World Bank congratulated Indonesia, one of the world's fastest-growing economies, on its economic performance and sound financial management.

Indonesia's controversial human rights record in East Timor was not discussed, World Bank Vice President for East Asia and the Pacific Russell Cheetham said.

"Specific human rights were not put on the agenda here," he told journalists after the close of the two-day annual meeting of Indonesia's creditor consortium, the World Bank-chaired Consultative Group on Indonesia.

Cheetham said about 50 percent of the pledges were made by agencies and the rest was from donor countries. He said it was too early to give any further breakdown of the assistance.

In Jakarta, a Japanese official said yesterday his government had raised its aid commitment to Indonesia for the fiscal year 1995-1996 by 6.3 percent to 187.6 billion yen from 176.5 billion yen in the previous year.

Fast-disbursing

Zenji Kaminaga, the deputy to the Japanese ambassador said the aid commitment had risen by about 26 percent in terms of the U.S. dollar from $1.67 billion last year to $2.16 billion.

However, Japanese fast-disbursing assistance in the form of Sector Program Loan (SPL), the loan facility which could be used to strengthen Indonesia's balance of payments, remained at the previous year's level of the equivalent of $200 million.

"The larger commitment was made in response to the Indonesian government's request. Almost all of the requests were fulfilled," he told a press briefing in Jakarta.

The aid package includes 170.1 billion yen in the form of Overseas Development Assistance (ODA), of which 152.8 billion yen is in project aid, 17.3 billion yen ($200 million) in fast- disbursing aid and the remaining 17.5 billion yen in grant and technical assistance.

Kaminaga said that the 152.8 billion yen project aid also included 37.2 billion yen in fast-disbursing project loans.

He said that the interest rate on the soft loans would be reduced to 2.5 percent from 2.6 percent in the previous year.

Coordinating Minister for Economy and Development Supervision Saleh Afiff, who led the Indonesian delegation at the meeting, said that the steep surge in the yen's value against the dollar had significantly increased the amount of the Indonesian government's outstanding debts, which in April reached a total of around $64 billion. About 40 percent of the total is denominated in yen.

"Every one percent increase in the yen rate increases the stock of our foreign debts by around $350 million and every five percent rise in the yen rate raises our debt service burden by around $200 million a year," he was quoted by the Kompas, daily as saying in Paris on Tuesday.

The 27 government and institutional creditors who attended the meeting praised the robust performance of Indonesia's economy and commended the country's sound macro-economic management as well as the latest package of reform measures in May, the newspaper reported.

Nonetheless, they qualified their commendations with strong appeals to the Indonesian government to pursue a more vigorous democratization process and to make more concerted efforts to develop good governance, Kompas added.

The central theme of the creditors' suggestions was very similar to the observations made by the World Bank in its 1995 report on Indonesia.

The Japanese delegation, besides asking for more democratization and better governance, also called for better protection of human rights.

Japan, the largest single creditor, also suggested that the government improve efficiency, transparency and accountability with regard to its use of foreign aid.

The American delegation suggested that the government minimize direct market intervention and abolish other forms of market distortion to enhance fair competition.

It supported the World Bank's suggestion that the Indonesian government improve regulatory frameworks, increase domestic competition and develop efficient rules of the game for the business sector.

The World Bank Report on Indonesia, which was the main reference for the creditors in assessing Indonesia's economic performance, observes, among other things, that many restrictions on domestic trade still hinder efficiency and contribute to a high-cost economy.

The World Bank, which is considered the opinion-leader among the creditors, also called on the government to address the problems of industry cartels, price controls, entry and exit controls, exclusive licensing, public sector dominance, non- transparent government bidding and procurement processes and government intervention in favor of specific firms or industries. (hen/vin)