Slow reform stalls $925m in loans

Slow reform stalls $925m in loans

Berni K. Moestafa, The Jakarta Post, Jakarta

Some US$925 million worth of loans from Indonesia's main
creditor countries remained out of reach as the government had
fallen behind on a number of economic reform targets on which the
disbursement of the loans depended, a minister said on Monday.

Minister of Finance Boediono said that in respect of the $925
million, 0.75 percent in commitment fees and another 1 percent in
management fees had already been paid by the government.

Speaking before the House of Representatives' Finance and
Development Committee, he said creditors were withholding the
loans until Indonesia met its promised reform targets.

"Regarding program loans, we have to finalize a number of
conditions that we must look at one by one," said Minister
Boediono." We've signed agreements on several policies that we've
promised to implement but haven't done so far."

The delay brings the total amount of unrealized foreign loan
disbursements to around $1.72 billion, after a senior government
official disclosed last month that some $800 million in project
loans had not yet been disbursed.

In a presentation paper to legislators, the government said
that $925 million of this figure consisted of program loans from
the Asian Development Bank (ADB), the World Bank and Japan --
Indonesia's biggest bilateral creditor country.

Of the $925 million, the ADB was withholding $480 million in
loans, the World Bank $150 million and Japan $295.75 million,
said the paper.

These three lenders were also the most important members of
the Consultative Group on Indonesia (CGI), which grouped together
Indonesia's main creditors.

CGI loans consist mainly of program loans and project loans.
The latter are arranged to finance specific projects and their
disbursements are conditional only on the projects they finance.

Program loans are more flexible in their usage, and the
government has been tapping them to finance development projects
and to bolster its foreign exchange reserves.

Disbursements of program loans, however, depend on whether the
government can meet the economic reform targets it has agreed on
with lenders.

For instance, the ADB tied some of its program loans to the
deliberation of a new electricity bill to pave the way for the
restructuring of the power sector. The bill remained with the
House for nearly two years before legislators passed it last
September, during which time the ADB had to suspend the loans.

Last month, State Minister for National Development Kwik Kian
Gie also pointed to some $800 million in loans that remained
unused as the government lacked the funds to co-finance the
projects to which the loans were attached.

Kwik's National Development Planning Agency (Bappenas) has
proposed that the government cancel the loans altogether to avoid
amassing unnecessary debts.

Such delays are costly in an economy that relies on loans to
spur economic development at a time when private capital is
scarce.

More than one third of this year's development spending worth
some Rp 52 trillion (about US$5.65 billion) is funded by foreign
loans.

As more capital flows out of the country than in, and banks
are still struggling to recover from the 1997 crisis, much of the
economy depends on the state budget to stimulate investment.

The government's inability to access the CGI loans also
highlights the cost Indonesia must pay for failing to stick to
the agreed economic reform agenda.

Both the government and legislators have often come under fire
for neglecting crucial reforms in favor of short-term political
interests.