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.