RI needs $2.4b to $2.8b more loans from CGI: WB

Dadan Wijaksana, The Jakarta Post, Jakarta

The World Bank said on Thursday Indonesia would need to obtain between US$2.4 billion to $2.8 billion in fresh loans from the Consultative Group on Indonesia (CGI) donors to help finance the 2003 state budget deficit.

Andrew Steer, the bank's country director for Indonesia, told a press briefing that the figure, albeit higher than it was first proposed by the government, would still be the lowest since the economic crisis hit the country in 1998.

"This (the declining trend) implies nothing but good news, as it means that the country becomes less dependent on foreign financing needs," Steer said when unveiling the bank's report on the country's economic assessment for the upcoming CGI meeting.

As a comparison, CGI last year pledged financial support totaling $3.14 billion in loans and $568 million in grants and technical aid.

The World Bank will be a co-host with the government at the CGI meeting which would take place on Jan. 21-22 in Bali.

CGI is a grouping of the country's largest foreign lenders.

The 2003 budget deficit was initially projected at Rp 26.3 trillion (about $3 billion), but the forecast is widened to Rp 34.4 trillion after the Oct. 12 Bali bombing incident prompted the government to provide about Rp 10.6 trillion worth of fiscal stimulus to help cushion the impact.

The government will ask the CGI to help plug this deficit, while the remainder would come from domestic sources, including the use of some of the proceeds from the privatization program and sales of assets under the Indonesian Bank Restructuring Agency (IBRA).

In its report, the World Bank painted a positive picture in its economic assessment on the country, saying that despite some discouraging signs in its trade policies, Indonesia had made significant progress with some economic reforms.

"Structural reforms have remained on track. It accelerated after the Bali bombing, where the government renewed its efforts on a wide front," it said.

The progress was reflected in further sales of assets and a bank under the supervision of IBRA, further privatization of state companies and the passage of the Law on an Anti-Corruption Commission.

While IBRA's assets sales continued, the government managed also recently to sell a majority stake in recapitalized Bank Niaga, and a 42 percent stake in state-owned telecommunications firm PT Indosat.

As an important member of the CGI, the Bank's assessment would prove crucial for other members to determine whether to give their vote of confidence on the country.

However, despite the progress, there were also worrying signs with regard to certain government policies, especially in the trade sector, which recently saw the application of new, protectionist tariff and non-tariff measures on certain commodities including sugar, clothes and textile.

The World Bank said that as such provided signals that the government moved to a protectionist stance, which run against the interests of many creditor nations.

Particularly worrying was a plan to increase the import tariff on rice, a measure that would hurt the poor, it added.

In another part of the report, it also noted that the government should maintain the macroeconomic stability while also pursuing reform actions that could accelerate growth, create jobs and reduce poverty, such as improving the domestic investment climate and legal reform.

"A weak investment climate and legal system are holding back economic growth," Steer said.

Concrete steps that the government could take to improve the investment climate are cut short the long and cumbersome bureaucracy, balancing labor regulations for the benefit of both employee and employers and clarifying the confusing decentralization program (autonomy law).