RI cannot be permitted to collapse

RI cannot be permitted to collapse

The Straits Times, Asia News Network, Singapore

Last week, Indonesia received a fresh credit line of US$3.14
billion (S$5.75 billion) from international lending agencies and
governments, which collectively form the Consultative Group on
Indonesia (CGI), to tide it over its budget shortfall for the
next year.

The Asian Development Bank and others pledged US$1.15 billion,
the World Bank US$1 billion, and Japan US$720 million.

All in all, the CGI has lent Indonesia US$14 billion since
1998. The International Monetary Fund, which is not a member of
the CGI, has a separate three-year US$5-billion deal with
Jakarta.

Rather heartening, the sight of international moneybags
rushing to the aid of a stricken giant which is taking a while to
recover from the 1997 shock.

But this is not altruism. Indonesia just cannot be permitted
to collapse in a heap, because the rubble and the "bad air" would
ruin the neighborhood and international linkages further afield.

Just as Mexico, Brazil and Russia were steered clear of
ruinous defaults in the last two decades, Indonesia has to be
steadied not only as a self-paying proposition but, most
critically, also as a going concern politically.

It therefore gets a little disconcerting looking at the record
of loan disbursements.

As these are tied to fulfillment of projects and reforms, this
says that Indonesia has not met specific requirements of
governance in privatization and graft fighting, to give two
examples.

No matter how much aid is offered, Indonesia lacks the
capacity to absorb all of it.

In a damning self-indictment, Kwik Kian Gie, who oversees
national development and planning, told the CGI meeting he could
not guarantee that some of the new aid might not be siphoned off
by corrupt officials.

Last year's Tokyo round of the CGI pledged US$4.8 billion, but
only US$2.6 billion was drawn on. In a perverse way, release of
funds to a country most in need has by necessity to meet tough
prudential conditions.

The World Bank's discussion document for the meeting showed
how forbidding Indonesia's agenda is: It said uncertainties
arising from the Sept. 11 attacks would exacerbate Jakarta's
debt, endemic corruption, civil unrest and capital flight.

It took a gamble judging President Megawati Soekarnoputri's
first 100 days in office as having brought "little progress in
structural and governance reforms", and said the country was
"muddling through" a crisis.

Jemal-ud-din Kassum, the bank's vice-president for East Asia
and Pacific, waded in with the scathing remark that investor
confidence weakened in the first half of the year.

Given the bleak backdrop, it is an open question whether
Indonesia could meet the World Bank's notional deadline of six
months to prove it can take tough decisions in exchange for the
loan guarantees.

The CGI and international investors are using as a test the
government's handling of an asset grab by the West Sumatra
legislature.

A local subsidiary of the state-owned Semen Gresik cement
company was taken over in defiance of the central government,
which meant to sell its controlling stake to a Mexican firm.

This tussle is supposed to prove two things: Whether the
center can control the provinces despite the democratic
concession of devolving authority, and how serious Jakarta is
about privatising moribund state enterprises.

Coordinating Minister for Economics Dorodjatun Kuntjoro-Jakti
says this is "illustrative" of the difficulties the government
faces.

The Semen Gresik case is one small corner of the vast
pastiche, but the government should be mindful of scoring
victories where it can. Foreigners notice these things.