Reform or go bust

International donors have reaffirmed strong support for Indonesia at this extremely difficult time by pledging US$2.7 billion in new soft loans and grants to help plug the state budget deficit, but again urged a faster pace of reform to lift the economy out of its five-year-old crisis.

The World Bank-coordinated creditor consortium (Consultative Group on Indonesia) meeting in Bali once again warned that the new aid package would simply be wasted if the government did not make faster progress with its reform measures to improve macroeconomic efficiency and minimize the state losses caused by corruption.

The critics of foreign loans who claim to be championing the common people's interests need to realize that it is the new loan commitments that have enabled the government to allocate Rp 4.4 trillion ($490 million) to the social safety net, continue subsidies for utilities and expand poverty-alleviation programs.

Without the new loans, the Rp 34.4 trillion hole in the state budget this year would have to be plugged either by further increasing fuel and power prices or unilaterally declaring a moratorium on our foreign and domestic debt servicing.

The first alternative is politically unacceptable, as can be seen from the street protests over the past three weeks that forced the government to roll back the utility price hikes.

The second alternative also spells disaster as Indonesia would be isolated by the international community. Yet even more devastating would be the fact that all of the largest national banks would go bankrupt as they still depend largely on the interest revenues from the government bonds they hold on their balance sheets as capital.

It is only the sovereign and multilateral creditors of the CGI that are still willing to extend grants and provide soft loans to the government. New borrowing from the international financial market is simply out of the question as the government is already burdened with $73 billion in foreign debts and Rp 650 trillion in domestic debts.

It is futile now to argue that the economic crisis that caused this huge debt burden is of the government's own making and that the government would not have to beg for new loans if it could stop the corruption that costs the state an estimated $28.5 billion a year, as development planning minister Kwik Kian Gie argued at the CGI meeting.

True, the economic debacle is largely the legacy of the previous Soeharto government. Kwik's point of view is also legitimate, but where else in the world could a government wipe out within less than two years the sort of corruption that has become deep-rooted in the national body politic for more than 30 years.

Having said that, we don't mean to defend the record of President Megawati Soekarnoputri's government. Its performance in building good governance is utterly disappointing and Megawati's leadership in the effort to bring about reform and ensure justice has been very weak.

It is therefore most imperative to continue promoting the national drive against corruption, and all regulatory and bureaucratic barriers to sound economic activities and law enforcement so as to ensure justice for all. We should pressure the entire government to speed up the pace of reform. This is also the main message conveyed by the CGI creditors who have been supportive and sympathetic to our plight.

Campaigning against foreign creditors would by no means solve our problems. Where is our national dignity and probity if we can so easily blame others for our own mistakes. Likewise, going all out to topple the present government will only plunge us into a political and economic abyss.

However, while increasing pressure on all branches of government to build good governance and ensure justice, we also need to realize that our overall reform movement involves changing many minds, systems, ways of being and doing, education and a wholesale reshaping of institutions on a grand scale.

Any progress we or the government might be able to make can only be incremental at best, given the multi-dimensional crisis we now find ourselves in during the current transition from a centralized, authoritarian government to a democratic, decentralized one.

The problem, though, is that our economy has been bleeding since the onset of the crisis five years ago. It urgently needs blood transfusions, which is where the annual loans and grants provided by the CGI creditors come in.