RI donors wary of new loan pledges, World Bank says

RI donors wary of new loan pledges, World Bank says

Berni K. Moestafa, The Jakarta Post, Jakarta

Indonesia's poor track record in meeting reform targets may
inhibit donor countries from pledging greater loan support needed
to finance next year's state budget deficit, according to the
World Bank on Monday.

The World Bank, in a report preceding a donor meeting of the
Consultative Group on Indonesia (CGI) this week, warned of the
consequences of the snail's pace reforms of the government.

"Official creditors are becoming increasingly wary of pledging
support for policy reforms when the track record gives little
comfort," the bank said.

This year alone, it said, donors were likely to withhold some
US$900 million of $2.6 million pledged, as conditions for the
loans had yet to be met.

It said disbursements from ongoing and new loans pledged in
the CGI depended on Indonesia's policy performance.

"So their disbursement should not be a foregone conclusion,"
the World Bank reminded.

From 1998 to 2001, poor policy performance cost Indonesia over
$6 billion in delayed or canceled program financing, the bank
said.

Another $3.1 billion was delayed in project financing, loans
whose disbursement is directly linked to development projects.

"Slow progress with reforms has cost Indonesia dearly in terms
of resource availability that might have boosted development
spending for the poor," the bank said.

A vital reform target is this year's fiscal sustainability,
which the government hopes to limit to a deficit of 3.7 percent
of gross domestic product (GDP).

Amounting to some Rp 51 trillion (about $4.67 billion), the
deficit is financed through privatization, state asset sales, and
foreign loans.

But now, the three-month-old government faces shortfalls on
all three funding sources, causing concern over its ability to
achieve fiscal sustainability.

The appetite for Indonesian assets remain low, due in part to
negative market sentiment, the World Bank said.

It cited two reasons for this, the first being legal
uncertainties prevailing at local courts.

" ... there is a clear perception that actions by authorities
reflect a systematic bias against foreign investors and an
unequal application of the law in favor of domestic debtors," the
bank said.

The second reason was Indonesia's reaction to the U.S.
military strikes against Afghanistan, combined with television
images of demonstrations by anti-U.S. groups.

Analysts said Indonesia had failed to back up its verbal
support for the U.S. war against terrorism with concrete actions.

Although market sentiment was negative, the World Bank urged
the government to proceed with its privatization program.

On Wednesday, the CGI will meet to discuss further loans for
financing the 2002 state budget deficit.

The government has said it was seeking new loans of around
$3.5 billion to finance next year's budget.

In spite of the current shortfalls, major donor countries have
shown continued support for Indonesia.

Japan, one of Indonesia's largest donor countries, said it
remained committed to supporting Indonesia's budget needs.

Hiroshi Ogushi, the Japanese Embassy's first secretary for
financial affairs, said last week Japan would show greater
flexibility.

He also did not rule out the possibility of Japan accepting
Indonesia's request to defer interest payments during the Paris
Club meeting next year.