WB tells donors to aid Indonesia

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.
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