Indonesia makes case of CGI for more aid

Indonesia makes case of CGI for more aid

PARIS (Agencies): Indonesia told foreign donors on Tuesday that they would see deep-rooted financial and political reform in coming years but needed to hand over another US$5.5-6 billion to keep the economy on the recovery track.

Coordinating Minister for Economy and Finance Ginandjar Kartasasmita said elections in June were a "striking achievement" disproving gloomy pre-poll criticism and the economy was pulling out of recession.

Despite fresh unrest and bloodshed in parts of the country, Ginandjar gave an upbeat appraisal of reforms in the wake of a national upheaval which forced former president Soeharto out of power last year and plunged the economy into turmoil.

"The elections proved to be a beacon of democracy, and one which sparked renewed confidence in our country," he said.

They were ..."only a first step in the direction of more transparent, democratic and open institutions which Indonesia needs as a basis for sustainable growth," Ginandjar said at the annual meeting of the Consultative Group on Indonesia (CGI).

Ginandjar predicted gross domestic product growth of 1.5-2.5 percent in the current fiscal year, said that the currency had now stabilized and inflation and interest rates were falling. Bank and corporate reform would continue and accelerate.

"When we met last time, exactly one year ago here in Paris, Indonesia was close to despair," he told delegates from foreign donor countries which are expected to end a two-day meeting here Wednesday with a pledge of $5.5-6.0 billion for 1999.

"Today, Indonesia is on the road to recovery. The rupiah has stabilized at the level of between 6,500 to 7,000 per dollar, inflation is rapidly declining and is likely to stay in single digits this year."

Interest rates were now below 15 percent and the economy had started growing again, he said.

"These signs of renewed economic activity have encouraged the government to revise its economic projections for 1999. We expect end of period inflation to fall to about 5 percent by the end of the year and for real GDP to grow by 1.5 percent to 2.5 percent," he added.

Ginandjar acknowledged that the country's biggest economic challenge was public debt. The World Bank, hosting the meeting here, says public debt by year-end will hit a "staggering 102 percent of GDP, a fourfold increase from the pre-crisis period".

"We are aware that the balance of fiscal policy will have to shift from fiscal stimulus to fiscal sustainability," he said.

Falling interest rates and a stronger currency would reduce the burden of debt service. The task was "enormous" and a backlog in maintenance in all sectors, and overdue civil service reform, would add to pressures on the budget."

"We must therefore give every effort to raising financing domestically, by improving tax collection, privatizing state enterprises and recovering assets held by the Indonesian Bank Restructuring Agency (IBRA)," he said.

"We also need to develop a bond market which will increase financing options for the government as well as expand the range of instruments for monetary control," Ginandjar added.

World Bank managing director Sven Sanstrom, who chairs the two-day meeting, said Indonesia has come a long way both economically and politically since last year, but much remains to be done and both the government and donor countries must continue their efforts.

"What a difference a year makes," Sandstrom told the annual meeting of almost 30 donor countries and international organizations at the World Bank offices here to agree aid for the coming year.

Last year's meeting was held in an atmosphere of "doom and gloom" but now "the economy has stabilized and the social impacts of the crisis, while severe, are not as catastrophic and all- embracing as we had feared," Sandstrom said.

But, he warned "we must not become complacent ... bank and corporate restructuring is still far from complete" and reforms aimed at rebuilding confidence and combating corruption "are likely to take years to implement fully."

And while this year's meeting takes place after "one of the most remarkable accomplishments yet," Indonesia's first free and democratic elections in four decades, Sandstrom said, he also noted that the fact that the new government is not yet in place had posed some problems for organizing the meeting.

Several non-government groups had urged that the annual donor meeting be postponed so that donors could discuss the budget and aid requirements with the new government following the June 7 elections.

But the process is proving long, and Sandstrom said he had convinced most people that the meeting should go ahead "to maintain the momentum of the reform program and ensure political support during a period of political uncertainty."

A second meeting will be held in January to enable the donor countries to meet the new government, and Sandstrom said Tuesday that non-government groups might be invited to join that session.