July 27, 1999
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| July 27, 1999 | atimes.com | |
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| Southeast Asia Indonesia's donors confront frail recovery, uncertainty By Abid Aslam WASHINGTON - International donors and creditors are to decide this week how much money to commit to Indonesia, with no clear idea of who is going to run the Southeast Asian nation of 200 million people. The Consultative Group on Indonesia (CGI), a coordinating body chaired by the World Bank, is to hold talks with the Indonesian government in Paris Tuesday and Wednesday in the midst of a political transition which began with parliamentary elections June 7 and which will include the selection of a new president in November. Adding to the uncertainty are an impending referendum on the future of Indonesian-occupied East Timor; security worries in Aceh, at the northern tip of Sumatra, and Irian Jaya, also known as West Papua; and persistent concern about corruption and political abuse of foreign aid. Indonesia has agreed with the United Nations to hold an independence referendum in East Timor next month but the UN has yet to decide whether the ballot, already postponed, can go ahead in the face of violence by pro-Jakarta militias supported by the Indonesian military. Indonesian and foreign non-governmental organizations and Timor support movements want a postponement of the CGI talks, as does the country's National Mandate Party, which placed fifth in last month's elections. Critics say the current administration could use new loans to help President Bacharuddin Jusuf Habibie win re-election. They charge that the ruling Golkar party diverted development aid to buy votes in the lead-up to last month's polls and to finance opposition to Timorese independence. No party won a majority in the parliamentary vote and the outcome of the presidential race is unclear. Donors have voiced unease that the Indonesian Democratic Party of Struggle (PDI-P), which won the largest number of parliamentary seats, has yet to articulate a credible economic plan despite assurances it will stick to policies mandated by the International Monetary Fund (IMF). Also worrying to CGI members are local economists' reports that 30 percent of government funds have been subject to "leakage" and a recent internal World Bank finding that 20 percent of its financing has been misappropriated - with staff members' knowledge and possible collusion. With four of the country's five leading political parties backing the Paris talks, donors have decided to proceed. However, "the focus [will] be on the short-term measures needed to sustain economic recovery - without pre-empting the options of the new government," with which the CGI will hold fresh meetings in about six months, says World Bank Indonesia Country Director Mark Baird. Bank officials say CGI members are being asked to pledge $5.5-6 billion toward the $9.8 billion needed to plug Indonesia's projected 5.8 percent budget deficit in the fiscal year ending on March 31, 2000. The remaining portion is expected from reschedulings of foreign debt and project finance through export credit agencies in countries such as Japan, which is Indonesia's largest foreign investor. Jakarta likely will need significant aid in the 2000-01 fiscal year to cover a likely budget gap of four to five percent, according to the World Bank. Indonesian and IMF officials, citing nervousness about corruption and future economic policy, have said they expect the country will get just $4.7 billion from the CGI, compared with $8 billion last year. The government, in a Letter of Intent to the IMF released Friday, has boosted its economic growth forecast for 1999-00 to 1.5-2.5 percent, up from zero to two percent previously. In the 1998-99 fiscal year, the economy shrank 14 percent. With falling prices and a strengthening currency, the government says it is confident that single-digit inflation can be locked in this year. Although the document sees "no loss of momentum . . . during the transition to a new government," donor officials and private-sector analysts fear these expectations are too optimistic. The World Bank, in a report prepared for the CGI meeting, says that Indonesia's recovery from the Asian financial crisis of 1997-98 remains "far from assured." "Many of the structural problems that contributed to the crisis remain unresolved," according to the bank. "Everything cannot be tackled at once. The depth of the problems and the capacity of the government will not allow it."
This has added to public indebtedness, which the World Bank says will reach a staggering 102 percent of gross domestic product. Returning to the pre-crisis level of 24 percent could take another 15 years. International creditors blame Indonesia for dragging its feet on recovering bank assets and privatizing public firms but local business groups complain that schemes enacted as a condition of the country's $45 billion IMF-led bailout provide too little access to domestic investors. Opposition parties and grassroots groups meanwhile are calling for a portion of public debt to be written off, arguing that much of it was amassed under President Suharto, who last year handed the reins of power to Habibie after 32 years in office. (Inter Press Service) | |||||||||
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