Why we need foreign aid

From Media Indonesia

Unlike relief aid for the casualties of natural disasters, "foreign aid" refers more often to monetary loans rather than grants. We have to return the foreign aid we get, the repayment of which is included debt servicing expenses under the state budget.

Why does our government need such foreign aid?

The most basic reason is that the government's finances are barely adequate to cover all of its development programs and activities.

By official declaration the foreign aid plays only a supplementary role. As the years have passed, however, the external loans meant in the beginning to support the domestic development program have become a burden. The repayment obligation become heavier with each year. From the first to the fifth five-year development programs (Pelita), 1969-1994, the amount required for external debt servicing increased by 37.1 percent per year on average.

In the run up to the imminent Consultative Group for Indonesia (CGI) meeting in Paris from July 7 to July 8, 1994, economists have expressed concern over the total value of our foreign debt, which they say is approaching the "psychological threshold amount" of US$ 100 billion. Certainly Indonesia's economic policy makers ought to note this.

The donor countries do not extend loans to developing nations solely for economic reasons. Basically they are motivated by various strategic, political and ideological interests, although outwardly they would seem to give aid for the moral and humane reason of helping the Third World.

In my opinion, our country needs to take steps to free itself of dependence on external debts, which should include the following:

* The role of foreign loans in the budget should be reduced by decreasing total amounts through belt-tightening measures. Funding priorities should be sharpened under the declared government principle of financial prudence. As long as we still need foreign loans we should get more choosy about the donor countries which, like it or not, are restrictive regarding the policies of recipient countries.

* Revenues from domestic sources should be optimized, particularly by raising more taxes through more effective collection and expanding the number of taxpayers. In this regard the possibility of "collusion" between taxpayers and tax- collectors should be kept to a minimum, a factor that would boost public trust in the taxation system itself.

SUDARTO

Jakarta