[stop-imf] Indonesia: Momentum Builds to Throw Out IMF

[Robert Weissman]

Financial Times (London)
January  23, 2003

Critics of IMF Distract Donors in Bali

By SHAWN DONNAN

NUSA DUA,

Indonesia's international donors yesterday pledged Dollars 2.7bn (Euros
2.5bn, Pounds 1.5bn) in budgetary support to plug the country's fiscal
gap for
the fourth time since the late 1990s Asian financial crisis.

But while the public focus of a two-day meeting in Bali of donors, led
by
the
World Bank, that ended yesterday was how best to help Indonesia continue
its
recovery, one of the issues dominating discussion on its sidelines was
the
future of Indonesia's relationship with the IMF.

Ever since it was first asked to help by President Suharto, the
strongman
forced to stand down in 1998, the IMF has had a contentious relationship
with
Indonesia and its people.

For many critics the fund's involvement illustrates the dangers of
overly
prescriptive rescue programmes for ailing economies. The four-year
Dollars
4.8bn
reform programme in which Indonesia is enrolled is due to expire at the
end of
this year and within Indonesia there is growing political pressure for
the
government not to enter into a new deal.

The government has signalled it would like the IMF mission to end. "Our
course remains to restore financial normalcy and end the IMF programme
at the
end of this year," Dorodjatun Kuntjoro-Jakti, the chief economics
minister,
told
donors.

Parliament has also become involved by issuing a decree calling for the
government to draft an exit strategy and diplomats, politicians and
analysts
say
that, with an election looming next year, extending the IMF programme
would be
politically difficult, making it an unlikely proposition.

"Politically, there is a lot of support from the Indonesian people for
terminating the contract with the IMF," said Noviantika Nasution, a
member of
parliament from the Indonesian Party of Struggle (PDIP), President
Megawati
Sukarnoputri's party.

The expectation may be that Indonesia will decide to graduate: at a news

conference in Bali last night the Japanese ambassador treated it as a
fait
accompli. But the government insists it has not made a decision.

In an interview with the FT this week, Boediono, the finance minister,
said
the government still needed to determine whether leaving the IMF's
"credibility
umbrella" was a good thing, especially at a time when it is criticised
on all
sides for not doing more to improve a poor investment climate that is
causing
steep falls in foreign direct investment.

Mr Boediono also questioned whether Indonesia could come up with the
financing to pay the high cost of leaving the IMF umbrella.

Engaging in the IMF programme allows the government to negotiate with
international creditors collect-ively under the Paris and London Club
structures. This year that has meant a benefit to the budget of more
than
Dollars 3bn, money the government would have to replace.

Repaying the IMF itself should not be a problem. That money has entered
the
country's general reserves and could be repaid in short order.

Closing the fiscal gap left by an end to the IMF programme might be
possible
in an improving global economy with significant reforms and an improving

investment climate. But the global economic picture remains uncertain
and the
IMF's reform programme remains far from complete.

Daniel Citrin of the IMF said that to graduate from the IMF programme
with
a
bright future the country had to "redouble its effort in the
implementation of
the reform agenda". However, the government this week announced a
reversal of
the utility price increases advocated by the IMF and World Bank, and
many
donors
in Bali were speaking of "lowered expectations" for the reform
programme.

----------------------

CGI Still Best Solution to Indonesia's Budget Deficit: Economist

JAKARTA, Jan 23 Asia Pulse/Antara - A noted economist yesterday said
that
seeking CGI (Consultative Group on Indonesia) loans was still the best
way to
solve Indonesia's state budget deficit problem.

"If the government continues to cut state subsidies and lower taxes,
there is
no other solution than seeking loans from donor countries," Mohammad
Chatib
Basri of the University of Indonesia's School of Economics said.

He admitted the ways in which country's debts were being managed had
remained
weak while foreign loans were always spent ineffectively as a
consequence of
leaks and corruption.

Asked who could manage foreign debts effectively, Chatib said it should
be
controlled by the people because government-run controling agencies were

costly and not automatically effective.

Touching on the government's earnings from taxes, he said the government
had
yet to optimize its income from this sector.

If the government could get one per cent of the gross domestic product,
it
would earn a total of Rp17 trillion (US$1=Rp8,900), he said.

"The question is whether or not the government can collect enough taxes
within the next seven months," he said.

Therefore, CGI loans remained needed but the amount should be reduced
and the
supervision of their spending should be tightly managed by the
government and
non-governmental organizations, he said.

About the government's capability to manage its debts, he said it was
good
enough as seen from the debt ratio to the GDP that decreased from 90 per
cent
in 2001 to 72 per cent in 2002.

On Wednesday, the Indonesian government negotiated with CGI members in
Bali
about obtaining US$2.65-billion in new loans.

----------------------

Indonesian Ngos Ask Gov't to Cut Ties With Int'l Organisations

JAKARTA, Jan 23 Asia Pulse/Antara - Various non-governmental
organizations
(NGOs) urged the government to cut off relations with the International
Monetary Fund (IMF), the World Bank, the Consultative Group on Indonesia

(CGI), and to speed up the expulsion of the Asian Development Bank from
Indonesia.

Anti-foreign debt coalition coordinator Kusfiardi together with other
NGOs,
in Jakarta on Wednesday, issued a joint statement saying that those
international institutions could only exacerbate the plight of the
Indonesian
economy.

"The recommendations made by the international creditors have put
Indonesia
in a difficult position and caused the people to carry a heavier
burden,"
Kusfiardi said.

IMF and CGI recommendations for the total liberalization of the trade
and
financialsectors, could be manifestated in the abolition of tariffs in a
bid
to accelarate the flow of trade as could be seen from the lowering of
the
sugar and rice prices.

Principally, the IMF proposed free market should be conducted by the
lifting
of subsidies and eliminating the role of the state in providing more
public
facilities through demands for the privatization of some state companies
to
serve the public interest.


Indonesia and some developing countries have been trapped in foreign
debt in
a strong demand for market and financial liberalisation.

At the global level, the liberalization introduced by the World Trade
Organization is to be implemented at a level of the national policy
through
mechanism of debt and role of creditors such IMF and CGI, he said.

This kind of scenario, he added, was thoroughly designed to pave the way
for
multinational companies to grow as become a substitute of the state.

He said the NGOs also appealed to the people to oppose the scrapping of
state
subsidies which the government was doing in order to pay its foreign
debts.

---------------------------

Consultative Group on Indonesia Supports Govt Economic Policy

NUSA DUA, Bali, Jan 23 Asia Pulse/Antara - Indonesia's traditional
foreign
donors grouped in the Consultative Group on Indonesia (CGI) have thrown
their
support behind the Indonesian government's strategy to overcome problems

stemming from poverty, a senior minister has said.

"They truly support our strategy to reduce poverty," Coordinating
Minister
for People's Welfare Yusuf Kalla said on the sidelines of the second day
of
the CGI's two-day meeting here Wednesday.

Indonesia has been seeking at least US$2.65 billion to help plug the
2003
state budget deficit.

The Indonesian government's poverty eradication strategy focuses on the
creation of jobs and the provision of credit for small- and medium-scale

businesses, Kalla said.

The government has saved the state budget to provide the less fortunate
people some subsidies, he said.

"The government will continue to maintain various subsidies for the oil,

health and education sectors," he said.

Kalla however said the number of jobs will only increase once the
economy
grows by 6 per cent.

"It is not easy to create jobs if the economy does not grow by 6 per
cent,"
he said.

Quoting a report of the World Bank, Kalla said Indonesia's poverty rate
in
2002 was 16 per cent.

"It is less compared to 18 per cent in previous years," he said.

--------------------------

CGI Supports Indonesia's Poverty Reduction Strategy: Minister

NUSA DUA, Bali, Jan 23 Asia Pulse/Antara - Indonesia's traditional
foreign
donors grouped in the Consultative Group on Indonesia [CGI] have thrown
their
support behind the Indonesian government's strategy to overcome problems

stemming from poverty, a senior minister has said.

"They truly support our strategy to reduce poverty," Coordinating
Minister
for People's Welfare Yusuf Kalla said on the sidelines of the second day
of
the CGI's two-day meeting yesterday.

Indonesia has been seeking at least US$2.65 billion to help plug the
2003
state budget deficit.

The Indonesian government's poverty eradication strategy focuses on the
creation of jobs and the provision of credit for small- and medium-scale

businesses, Kalla said.

The government has saved the state budget to provide the less fortunate
people some subsidies, he said.

"The government will continue to maintain various subsidies for the oil,

health and education sectors," he said.

Kalla, however, said the number of jobs will only increase once the
economy
grows by 6 per cent.

"It is not easy to create jobs if the economy does not grow by 6 per
cent,"
he said.

Quoting a report of the World Bank, Kalla said Indonesia's poverty rate
in
2002 was 16 per cent.

"It is less compared to 18 per cent in previous years," he said.

--------------------------

CGI Agrees to Extend US$2.7 BLN Worth of Loans to Indonesia

NUSA DUA, Bali, Jan 23 Asia Pulse/Antara - Donor countries and
institutions
in the Consultative Group on Indonesia [CGI] agreed in a meeting
yesterday to
extend US$2.7 billion worth of loans to Indonesia in 2003.

Indonesia's chief economic minister Dorodjatun Kuntjoro-Jakti said after
the
meeting that the CGI's commitment was bigger than US$2.65 billion
expected by
the government before.

But "this is also the lowest the CGI has ever given so far," he said at
a
press conference.

Dorodjatun said the CGI's commitment was also smaller than last year's
which
reached US$3.14 billion.

"This demonstrates the government's commitment to reduce dependency on
foreign debts and to rely more on domestic resources as mandated by the
National Policy Guidelines," he said.

Dorodjatun said the US$2.7 billion loan was divided into US$1.1 billion
in
program loan and US$1.6 billion in grants and project assistance.

Apart from that, he said the government also received commitments
through
other channels totaling US$0.4 billion to make total CGI loans for the
year
US$3.1 billion.

He said the loan to be given through other channels included technical
assistance and grants for regional governments and non-governmental
organizations.

Total commitment last year which was recorded at US$3.7 billion
consisted of
program loan totaling US$1.3 billion and project assistance including
grants
worth US$1.8 billion.

The World Bank's representative in Indonesia, Andrew Steer, said US$1.7
billion of the CGI's commitment for 2003 came from multilateral donors
and
the rest from bilateral donors.

------------------------

CGI Likely to Meet Indonesia's Needs: Economic Expert

NUSA DUA, Bali, Jan 23 Asia Pulse/Antara - Indonesia's traditional
foreign
donors grouped in the Consultative Group on Indonesia [CGI] are likely
to
meet the Indonesian government's demand for fresh loans, said economic
analyst Frans Seda.

"There is no figure of the [CGI] pledge but Indonesia's need will likely
be
met with stricter conditions," he said on the sidelines of the second
day of
the CGI's two-day meeting here yesterday.

Seda said CGI members in turn will certainly ask Indonesia to meet
stricter
conditions following problems caused by Indonesia itself.

"We saw at the meeting (today) that CGI wants to continue helping
Indonesia
but it is our country which has made problems," said the former finance
minister.

Indonesia has been seeking fresh loans worth US$2.65 billion to help
plug the
deficit of the 2003 state budget.

"The CGI is still consistent (with its commitment to help Indonesia)
although
we have moved forward and backward in our policy on the fuel oil price,"
Seda
said.

He also said the government is paying attention to the public demand for
a
gradual reduction of foreign loans.

"We have seen that the government has been seeking loans of at least
US$2.65
billion this year, far less than the US$7 billion in previous years," he
said.

The CGI extended a loan of US$3.14 billion last year.

With the increasing demand for less foreign debts, the government should
seek
alternatives to finance its national development program, he said.

One alternative is to increase the income tax, he said, noting that the
government should reduce its spendings, combat corruption, and empower
the
use of foreign loans.