Under creditors' scrutiny

There is no reason for the government to rejoice over the US$3.1 billion in new loans pledged on Thursday by its creditor consortium, the Consultative Group on Indonesia, because their disbursements are not yet guaranteed, being contingent upon policy performance. In fact, according to some sources who attended the closed-door meeting, there was already an air of aid fatigue among the creditors because of the government's disappointing track record in reform implementation.

That the creditors still made new pledges seemed to have been prompted more by their great concern over the devastating impact a halt in new loan commitments might have on Indonesia's fragile stability. Certainly, the country's vital geopolitical role in this part of the world was also prominent in their considerations.

But then what else can the CGI creditors do but continue supporting the government, as it still owes them more than $58 billion in debts outstanding as of last December.

However, since the new loan pledges would not mean anything in terms of remedying the nation's crisis if they were not realized as liquidity flows to the state budget, the government has to work harder to secure their disbursement.

For the current fiscal year alone, creditors are unlikely to disburse $1.7 billion or 65 percent of their $2.6 billion program loan pledges due to the government's failure to meet policy reform targets. In fact, according to the World Bank's latest report on Indonesia, only 40 percent or $9.3 billion of the $23.2 billion pledged in program and project loans by CGI creditors between 1998 and 2001 had so far been disbursed.

This obviously adds to concerns about fiscal sustainability because CGI creditors are now the only source of external financing available to the government. Not a single foreign commercial bank is now willing to lend to the government due to Indonesia's extremely high country risk rating.

The tone of the meeting was set mainly by the report entitled Indonesia: The imperative for reform, which was used as the main briefing shet on Indonesia at the CGI meeting.

The report bluntly points out that most reform measures lagged behind schedules and that in the 100 days after assuming office President Megawati Soekarnoputri had made little progress on structural and governance reforms.

Understandably, the creditors have insisted strongly that their loans be used efficiently and effectively and that the borrower, in this case the government, take the necessary measures, including painful ones, to ensure that the new debts actually help remedy the country's economic woes.

That is because the bulk of the money the creditors lend to Indonesia is derived from their own taxpayers, who themselves have been required to take on greater burdens amid the gloomier global economic outlook. For example, Japan, which usually contributes about 40 percent of the CGI's total credit commitment, is now plunging deeper into recession. Even the capital of the World Bank and Asian Development Bank, which together contribute one half of the consortium's total loans, is derived mainly from taxpayers in developed countries.

It is only sensible, even imperative, for the creditors to thoroughly examine whether the government has fully shouldered its share of the burden and implemented all the measures required to cure the country's economic ills, because they have to account for their loans to their shareholders (taxpayers).

The creditors should be especially careful about extending new loans because the government's total domestic and foreign debts have exceeded the country's gross domestic product. Its foreign debt service payments alone are now as large as 40 percent of annual export earnings and its foreign and domestic debt service obligations already take more than 42 percent of its total operating budget.

The creditors' demand that the government take more painful measures does not mean undue intervention in the country's internal affairs or infringement of its sovereignty. The point here is that any new loans from the creditors would simply be rendered ineffective if the government itself did not fully shoulder its share of the reform burden. In the same spirit, we should not feel offended by the creditors' criticisms that corruption in Indonesia had not been curbed but had instead flourished. Rampant malfeasance would waste their hard-earned loans.

What is at stake if the government is not capable of or serious about implementing the reform measures is not only the loans from creditors but also the survival of Indonesia's economy. Ineffective loans will instead add to the already huge debt burdens of the government and consequently the Indonesian people.