WB expects CGI to give $7b-$8b to Indonesia

WB expects CGI to give $7b-$8b to Indonesia

PARIS (Dow Jones): The World Bank is looking for the Consultative Group on Indonesia (CGI) to disburse US$7 billion to $8 billion in foreign aid to Indonesia in the year to March 31, 1999, to help the Asian country meet its budgetary needs.

This money would be on top of $6.2 billion in extra loans Indonesia received from the International Monetary Fund (IMF) and other international lenders, including Australia, China, the World Bank and the Asian Development Bank in mid-July.

The World Bank chairs the CGI which is holding its annual meeting here.

All told, funds from the two programs to be disbursed this fiscal year should total between $13 billion and $14 billion.

The CGI is to meet here today and Thursday, with a press conference to announce pledges and disbursement targets set for Thursday.

Vikram Nehru, the World Bank's economist for Jakarta, said, "the disbursement goals are budget led. If the target is a deficit for fiscal 1999 of 8.5 percent of GDP, that's roughly equal to $8 billion, if the rupiah is trading at Rp 10,000" to the dollar.

The Indonesian government has set an end-of-year exchange rate target of Rp 10,000 to the dollar. Late in Asian trading, the dollar was Rp 13,650.

"Then you add in $4 billion for government payment for amortization of external debt... and a comfort margin of $2 billion, and that is how you arrive at a financing need for this year of $14 billion," Nehru told a press briefing yesterday.

Nehru noted that the estimated dollar amounts needed by Indonesia depend on a number of uncertain factors. For the estimates to be correct, among other items, Indonesia's gross domestic product must shrink in 1999 by no more than 15 percent, banking sector reforms must be successfully carried out, and the June agreement on private debt restructuring must be successful.

Indonesia is currently engaged in a roadshow to convince both debtors and creditors to sign up for a $64 billion debt restructuring agreement that would relieve the crushing foreign debt burden on Indonesia's companies and banks.

Indonesia's crisis is domestic, which in turn is being driven by massive, short-term and unhedged debt -- much of which is corporate, Nehru said.

Turning to the administrative burden of disbursing such a large amount of money, Nehru said Indonesia would increasingly try to use a system of sending money directly from the capital to regions, rather than having the money flow through ministries. "There is a lot of untapped capacity in the regions (to place the funds)," he said.

Nehru added that if one believes that Indonesia's economy will stabilize in fiscal year 2000 and grow slowly after that, "it will take until 2005 before the per capita annual income reaches the level it was at in July 1997."