Our aid diplomacy

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.