Our aid diplomacy
Indonesia's aid diplomacy excelled once again when it secured $5.3 billion in fresh commitments from major donor countries and international lending agencies yesterday. The pledges were made by representatives of 28 donors at a meeting of the Consultative Group on Indonesia (CGI) in Tokyo. It represents a slight increase from the $5.26 billion pledged at the CGI meeting in Paris last year.
It may be small, but it is an increase nevertheless and its significance goes beyond the amount itself. To some, the increase almost defies logic. Indonesia went to Tokyo embroiled in rows in Geneva at the World Trade Organization with Japan, the United States and the European Union -- three economic powers who are also major donors in the CGI -- over its national car policy. Indonesia went to Japan in the knowledge that Tokyo, facing strong budgetary pressures at home, plans to slash the overall amount of its overseas aid by as much as 10 percent.
Given all these factors, it is surprising to see that Indonesia managed to convince CGI members to keep the aid flowing. One can attribute this largely to Indonesia's persistent aid diplomacy.
Virtually all the country's top economic ministers were dispatched to Tokyo to explain Indonesia's case for more foreign aid. State Minister of National Development Planning/ Chairman of the National Development Planning Board Ginandjar Kartasasmita was sent there last month to urge Japan to spare Indonesia from its plan to slash its Official Development Assistance. It would be interesting to find out what concessions, if any, were made, to defuse the national car row. Whatever they promised at the CGI talks, which were held behind closed doors, Indonesia's aid diplomacy triumphed this year.
Diplomacy alone was not enough though. Indonesia's strong economic fundamentals contributed in no small measure to convincing donors to sustain aid levels. The currency debacles in Thailand and the Philippines, and similar pressures faced by Malaysian and Singapore -- while unfortunate -- helped to highlight the solidity of the rupiah, resulting from Indonesia's prudent macroeconomic policies. Indonesia may not have experienced as rapid economic growth rates as its neighbors did in recent years, but it has seen greater stability and put up stronger resistance to external pressures.
Indonesia, however, is not totally out of the woods. Its balance of payments remains vulnerable with a current account deficit estimated to be running at $8 billion. But that is all the more reason why Indonesia needed the CGI's helping hand.
Then there is the role played by the World Bank, which organized the Tokyo meeting. The bank not only used its influence to prod other CGI members to maintain aid to Indonesia, it also propped the total aid pledges. The bank raised its commitment from $1.2 billion to $1.5 billion, which more than made up for the shortfall resulting from the lower Japanese commitment. It was also the World Bank's annual report on Indonesia, published last month, that gave a strong endorsement of Indonesia's macroeconomic policies. As in previous CGI meetings, the decision to give another $5.3 billion to Indonesia this year is another vote of confidence on the Indonesian economy and the government's macroeconomic policies.
Alas, considering that all good things must come to an end, every year, at the conclusion of the CGI meeting, one always wonders when the lending will start to fall, or even end completely. As Indonesia reaches the category of a middle-income country, it cannot expect donors to continue to be as generous as they have been.
Besides, all loans will have to be repaid some day. In recent years, Indonesia has been repaying loans more than it is receiving in new aid because of heavy past borrowings. This is bound to add pressure to its balance of payments which must be redressed not by borrowing more, but by bolstering exports, particularly in the non-oil sector.
Rightly however, so long as the going is good, why not borrow more. They are after all, loans at very concessionary terms that are too good to pass up. Next year is another case to work on, for the economy, and for our economic ministers.