RI expects lower CGI loan this year, says minister

Berni K. Moestafa, The Jakarta Post, Jakarta

Indonesia is expecting to receive loans below last year's figure of US$3.14 billion from creditor countries under the Consultative Group on Indonesia (CGI), a senior government official said, citing the lower state budget shortfall for 2003.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said on Thursday the country needed to refrain from accruing new debts and to cut back its reliance on CGI funds.

"Let's not make the CGI (loans) a habit. We want to reduce (the loans), as we do with our state budget deficit," Dorodjatun said following a CGI preliminary meeting at the World Bank office in Jakarta.

Indonesia uses the CGI loans partly to cover the shortfall in its state budget, and it is expected that the group will pledge new loans to help finance the 2003 budget deficit at its meeting next month.

For 2003, the government is targeting a deficit of 1.3 percent of gross domestic product (GDP), which measures the total value of products and services a country produces within a certain period.

This target would amount to an estimated budget shortfall of Rp 26.26 trillion (about $2.97 billion), compared to this year's estimated deficit of Rp 42.13 trillion, or 2.5 percent of GDP.

The government is also targeting a balanced state budget by 2004, thereby eliminating the need for new foreign loans.

Last year CGI donor countries pledged loans amounting to $3.14 billion and grants of $500 million. "I don't want more than last year," Dorodjatun said of the amount of loans he expected the CGI to pledge next month.

With total debts of about $134 billion, Indonesia is spending some 43 percent of its 2002 state budget servicing foreign and domestic debts.

This situation puts a strain on development spending, on which the country's economic growth now rests because of a lack of investment from the private sector.

Consequently, the economy lacks the steam to lift about 40 million Indonesians out of unemployment, at a time when nearly 60 percent of the population is at risk of falling below the poverty line.

Last year's 11th meeting of the CGI took the theme of "working together to reduce poverty", and Dorodjatun said that poverty would remain a central issue at next month's meeting.

The meeting is scheduled for Oct. 28 and Oct. 29 in Yogyakarta, the first time the CGI would meet in the city.

But as legislators have yet to approve the government's 2003 draft state budget, Dorodjatun said it was difficult to estimate how much funding was needed from the CGI to cover the budget deficit.

There are several contentious issues in the draft budget, including the economic assumptions the government used to calculate revenue and expenditure in the draft.

"It's tough because the world economy changes fast," Dorodjatun said.

Last year's CGI meeting came in the wake of the Sept. 11, terrorist strikes against New York and Washington, which deepened the worldwide economic slump.

Now Indonesia finds itself sandwiched between the lingering effects of Sept. 11 and uncertainties over the global economy due to war talk over Iraq, resulting in what Dorodjatun said was an unpredictable environment in which to draft next year's budget.

The Asian Development Bank's principal programs officer to Indonesia, Shiladitya Chatterjee, said that during Thursday's meeting CGI members received an update on Indonesia's economy from the government and the International Monetary Fund (IMF).

The IMF is providing a $5 billion loan package under a program running until the end of 2003. Compliance with the IMF economic reform program is necessary to convince the CGI of future loans.

"It seems that everything is going on track but much needs to be done," Chatterjee said referring to the overall progress of the Indonesian economy.