WB cautions RI on use of CGI funds

Urip Hudiono, The Jakarta Post, Jakarta

With Indonesia's economy steadily improving, pledges from donors grouped in the Consultative Group on Indonesia (CGI) could be used for longer-term development needs, rather than just for budgetary purposes, the World Bank said.

Nevertheless, the Bank estimates that Indonesia may need up to US$3 billion in loans and grants from the 30-member group of bilateral and multilateral donors to help finance this year's budget deficit.

The figure could still increase in light of the recent tsunami disaster in Aceh, which the Bank has estimated will likely cost some $5 billion in reconstruction needs, but which will only slow economic growth by a slight 0.4 percent.

Speaking on Tuesday while unveiling the Bank's latest economic report on the country, Work Bank country director Andrew Steer explained that the current situation was different from that which prevailed when Indonesia was struggling to recover from the aftermath of the 1997-1998 crisis.

"Three or four years ago, there was a real financial need to fill the gap in the state budget, but now it's different," he said. "The country is now macroeconomically well balanced, and becoming increasingly economically strong."

Given this, Steer went on, Indonesia -- which has one of the world's lowest human development indices -- could therefore begin using CGI funds for longer-term development needs.

"If donors are generous, than more can actually be done," he said. "More schools can be built, more roads can be built, more health clinics can be provided."

The CGI starts its two-day annual meeting on Wednesday and will likely use the report as its main reference in determining pledges to the country this year.

State Minister for National Development Planning Sri Mulyani Indrawati recently said that the government was hoping for up to US$2.8 billion -- about the same as last year -- from the CGI.

The Bank itself will likely provide between $700 million and $800 million of new loans to Indonesia this year, and up to $100 million for reconstruction in Aceh.

In its report, the Bank has forecast that Indonesia's economy will grow strongly by an average of 6 percent between 2006 and 2009. This year alone, the economy is expected to grow by 5.5 percent, up from 5 percent last year.

Other macroeconomic indicators are also encouraging, as seen in the declining trend in the state budget deficit from 1.8 percent in 2003 to 1.2 percent in 2004, and an estimated 1 percent this year.

Regarding debt, the Bank said that Indonesia's debt-to-GDP ratio reached a relatively secure level of 54 percent as of last year -- down from around 73 percent in 2003 -- and was on track to meet the target of 34 percent by 2009.

In 2003, the ratio stood at 74 percent.

Indonesia's poverty headcount had also reached its pre-crisis level of 15 percent of the total population as of 2003. As for unemployment, it stood at 8.6 percent in 2004, an improvement from around 9.5 percent the year before.

"The government has launched several reforms in the financial legal sector and established an anticorruption unit which has been deemed as positive by investors," World Bank lead economist Bill Wallace said.

"However, other policies, such as tax amnesty plans, and weak bank governance are still causing investors concerns."