Indonesia urged to speed up reform
Indonesia urged to speed up reform
By Kornelius Purba
TOKYO (JP): Optimism was high on the first day of the two-day conference of Indonesian creditors here on Tuesday that the crisis-hit country would receive the US$4.8 billion in loans it asked for to plug part of its $7.1 billion budget deficit in the next fiscal year.
However, new loan commitments will most likely mean tougher conditions that will force Indonesia to accelerate the pace of its reform measures.
"Its budgetary framework and the associated financing needs are deserving of support by the international community," Anoop Singh, International Monetary Fund deputy director for the Asia Pacific, said during the opening session of the Consultative Group on Indonesia (CGI) conference.
Japan, Indonesia's largest single donor, said it would maintain its stance of aiding President Abdurrahman Wahid's administration.
"The administration is facing difficulties but it is tackling the issue of structural reform and the security situation," Japan's foreign ministry spokesman, Ryuichiro Yamazaki, said. "As we see it, overall things are moving in the right direction."
But Indonesia needs to make more of a contribution to the revenue side of next year's budget, including accelerating the sale of assets that the state took over in the wake of the 1997 financial crisis, Singh said.
"If forthcoming, we can expect (the sales) to be matched by rising market confidence that would stimulate new investment and capital inflow," Singh noted.
The U.S. has championed efforts to make further aid dependent on an end to violence in the Indonesian province of West Timor, where three UN workers were killed last month.
Also, Indonesia's decision to postpone the sale of nationalized Bank Central Asia and Bank Niaga until next year has disappointed foreign investors, who saw the sales as a "bellwether" of the country's commitment to reform, Singh said.
"To regain market confidence, the government will need to schedule early time frames for their sale in 2001," he said.
Almost all of the delegates urged the Indonesian government to live up to its pledge to reform its economy, warning that failure to achieve significant progress would seriously affect its credibility.
"There is little room for further delay in implementing Indonesia's structural reform agenda due to the weakened state of the economy," said the U.S.'s chief delegate, Robert Randolph.
Disappointed
Randolph said the U.S. was disappointed with progress in key elements of the Indonesian economy, despite the government's Ten- Point Economic Acceleration Program.
He specifically mentioned the failure of the Indonesian Banking Restructuring Agency (IBRA) to achieve any significant progress, including the privatization of the agency-controlled Bank Niaga and Bank BCA.
Three years into the crisis, the markets are still waiting for Indonesia to demonstrate its ability to deliver on the challenge of asset recovery and restructuring, said Randolph in a statement.
On West Timor, Randolph said the government's seriousness in resolving the militias problem, including continued and full compliance with United Nations Security Council Decree No. 1319, would be key to restoring international confidence.
"We must state clearly that our pledge (of aid) is based on the assumption that Indonesia will fulfill its responsibilities to the international community," he said.
Japan also urged Indonesia's new economic team to accelerate the implementation of its letter of intent with the IMF, including in the area of bank and corporate restructuring.
"Although we should give due consideration to factors outside the control of the authorities, including those affected by the market, it is necessary for the government of Indonesia to make the utmost efforts for the implementation," said Ken Yagi, the director-general at Japan's Ministry of Finance.
World Bank vice president Jemal-ud-din Kassum, who presided over the closed-door meeting, said Indonesia had to address three key issues: the continuation of structural reforms, the clear articulation of a poverty reduction strategy and the implementation of comprehensive government programs covering legal and judicial reforms, decentralization and forest management.
On West Timor, Kassum said: "We all look forward to hearing more about governments plans for its continued efforts to achieve concrete results in this difficult area."
The Asian Development Bank's statement was the frankest in its feelings about the government's progress in the economic sector, which will affect the disbursement of loans by the international community.
"Billions of dollars have been provided in support of sector reforms and large undrawn balances remain available for utilization by the government. The pace of implementation of the reforms will, however, determine the level of disbursement," the ADB said.
Indonesia sent a large delegation to the meeting, including seven Cabinet ministers.
The leader of the Indonesian delegation, chief economics minister Rizal Ramli, reaffirmed the government's commitment to the IMF program and to the fund's role in the country's economic recovery.
Rizal reiterated that despite the recent decision by the House of Representatives to delay the sale of Bank Central Asia and Bank Niaga, sales that had already been agreed on with the IMF, the government still saw bank privatization as one of the primary goals of its financial sector reforms.
"We believe that foreign investor participation can support our banking sector's development and strengthening, due in part to the technologies and practices these investors bring," he said.
Rizal added that the government also remained committed to the privatization of state companies, and would encourage domestic and foreign investors to help reform state enterprises to make them globally competitive.
In an indirect response to recent criticism by the IMF and World Bank of several major debt restructuring deals concluded earlier this month, Rizal asserted that decisive action was needed to conclude a sound restructuring plan that would allow corporations to continue contributing to the economy.
"We are guided by the principle that the restructuring process is the same for each organization, and the principles are applied evenhandedly to each corporation under similar circumstances."
In each restructuring deal, Rizal added, the debtors are required to provide personal guarantees to cover any deterioration in the value of pledged assets and outstanding debts.