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.