WB tells donors to aid Indonesia

JAKARTA (JP): The World Bank urged the country's major donors on Tuesday to provide crucial financial support for the three- month-old administration of President Abdurrahman Wahid.

World Bank vice president for the East Asia and Pacific region Jean-Michel Severino said the "political and economic gains" made by the democratically elected government were still fragile amid social and political instability, as well as resistance to painful economic reforms.

"We all have a responsibility to help the new government meet these challenges and build the stability which is essential for sustained development," Severino said in his brief opening statement on the opening day of the two-day Consultative Group on Indonesia (CGI) ninth annual meeting, held for the first time in Jakarta.

The World Bank is chairing the meeting, which includes the Asian Development Bank and other bilateral donors. They are scheduled to pledge their loan commitments on Wednesday.

Indonesia expects to be able to obtain between US$4.2 billion to $4.7 billion in new loans to help finance a projected huge deficit in the 2000 state budget, which begins in April. The deficit is estimated at 5 percent of gross domestic product (GDP).

Vice President Megawati Soekarnoputri opened the meeting in the absence of Abdurrahman, who is on a two-week overseas trip to seek support from foreign governments and investors to rebuild the ailing economy.

Megawati urged the donors to assist the country in resolving the economic crisis.

"We need the assistance, moral support and funds from the countries and institutions which you represent in the CGI forum," she said in her opening speech.

Megawati attributed the country's severe economic difficulties to rampant corruption under the previous administration of Soeharto.

"We are fully aware that the economic crisis which has caused a great deal of damage to the Indonesian people is not due to the impact of the globalization process -- it was due to our own weaknesses.

"Internally, the economic crisis which befell us occurred mainly because there was a group of members of the community who made use of the weaknesses of the regulations and of the company management ethics, besides the weaknesses in banking supervision."

In addition to assuring donors that Indonesia would continue with its efforts to develop a globally oriented economy and provide legal certainty for investors, Megawati told the foreign borrowers the government would work hard to resolve violence from sectarian conflicts and separatist movements.

"It is my conviction that all of those problems can, little by little, be solved," she said.

Indonesia has been racked by the more than a year-long sectarian violence in Maluku and separatist demands in Aceh, Riau and Irian Jaya, all resource-rich provinces. There are fears the unrest could spread to other areas.

Meanwhile, more than 1,000 people protested peacefully outside Bank Indonesia, the venue of the CGI meeting, demanding donors provide the country with debt reduction because its available resources should be used in the crisis-hit economy's recovery instead of servicing foreign debts.

The protesters, representing some 125 non-governmental organizations (NGOs), called on the government to reject any new loans if the donors declined to provide debt relief.

They dubbed CGI the "Coalition of Global Imperialists".

NGOs have demanded a 30 percent debt reduction because they say donors, particularly the World Bank, should also be held responsible for malfeasance in foreign loans secured by the Soeharto regime.

The World Bank has argued that Indonesia is ineligible for the debt relief because the country does not fall into the poorest nation category.

The government also said that it would only seek debt rescheduling, with a plan to reschedule some $2.2 billion in sovereign debts in the 2000 budget year.

Its foreign debt in the current fiscal year ending on March 31 is expected to reach more than $80 billion, equivalent to nearly half of the country's GDP.

Almost half of government revenue this year will be applied to servicing foreign and domestic debt. The government has incurred huge domestic debt to finance the country's bank restructuring and recapitalization, estimated at more than Rp 500 trillion ($67 billion).

None of the government officials participating in the CGI meeting touched on the issue of debt reduction. The country's senior economic ministers merely highlighted the current economic conditions and measures to overcome various problems.

Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie said in his remarks that Indonesia had achieved a "significant degree of macroeconomic stability" with the strengthening of the exchange rate of the rupiah to the U.S. dollar and the drop in inflation.

Kwik said that real GDP in the current fiscal year was expected to grow 1.8 percent, which is within the government's earlier forecast of zero percent to 2 percent.

"While we have now achieved a degree of macroeconomic stability, this is not enough to yield political and social stability." He noted declining capital good imports as the most significant danger signal.

Separately, finance minister Bambang Sudibyo said that another major concern was the continuing decline in investment, which fell 21 percent in 1999.

"This collapse in investment, which is also reflected in the data on imports of capital equipment, does not bode well for the future. Economic growth must, in the long run, be driven by investment," he said.

Both Kwik and Bambang pledged that the government would press ahead with its economic reform programs to solve the problems. (rei)