Asiaweek:The use and misuse of Indon's huge loans (fwd)

[Robert Weissman <rob@essential.org>]

Asiaweek
week of April 9, 1999
*The use and misuse of Indonesia's huge loans
By Jose Manuel Tesoro / Jakarta

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IN JAKARTA, A SMALL publishing industry has sprung up around the exposure
of
open secrets. The failings of the country's system, once often discussed
but
rarely printed, are now the subject of books with such titles as Following
the Roots of Indonesia's Crisis. These publications are usually
retrospective; somewhat less ink has gone into understanding current and
future ramifications - like the huge foreign debt Indonesia has incurred
because of its implosion.
The lion's share of the bailout for Indonesia came in the form of loans,
with
maturities, conditions and compounding interest. At the end of 1998 Jakarta
owed about $20.5 billion to the World Bank and the International Monetary
Fund - or about 50% more than what it owed a year earlier. To the Asian
Development Bank, its other major multilateral donor, Indonesia owes an
additional $1.16 billion in Crisis-related loans. And these totals do not
include debts to foreign governments. (At the end of 1997 - before the
meltdown - total bilateral borrowing already stood at $21.6 billion.)
Although the loans themselves are given on concessionary terms (fair
interest
rates, a few years' grace period before repayment and maturities that
stretch
into the decades), that does not reduce worries over how the government is
using - or misusing - the funds. IMF loans had strict conditions specific
to
shoring up reserves and defending the currency. But there are billions in
other lending that go straight into the budget, which can be used anywhere
from paying civil-servant salaries to servicing payments on earlier
borrowings.
These days, government spending is almost never uncontroversial - not the
bank recapitalization, not the cheap credit for small- and medium-scale
enterprises, not even the subsidized food and employment programs. The last
is a case in point: In its 1998-99 budget, Jakarta set aside 9.36 trillion
rupiah (about $1.1 billion at today's rates) for "food security, social
protection and work schemes." But the government's social safety-net
programs
have come under fire for being rushed, badly designed and open to
corruption.
Take PDM-DKE, a state-sponsored program that works with non-governmental
organizations to fund local food and employment projects. In February, 11
PDM-DKE facilitators in Cirebon, West Java, resigned, accusing an NGO of
skimming off funds and paying kickbacks to government officials. There are
indeed many complaints about so-called "red-plate" NGOs (the nickname
refers
to the license plates on government vehicles). These groups have been
created
by former or serving civil servants and their relatives allegedly to take
advantage of funds in the same way that, during the Suharto years,
well-connected officials formed companies to feast off government
contracts.
In the years of the boom, according to one reported estimate, some 30% of
World Bank funding was siphoned off by corrupt officials. "You can't look
at
what happened to the World Bank and not be worried," says one Western
ambassador. That could be part of the reason some donors have been
bypassing
the government altogether. The United States Agency for International
Development is sending $6.8 million worth of food aid to needy Jakarta
residents through the charity group World Vision International. Both
Singapore and Japan distributed part of their emergency assistance last
year
through mass Muslim organizations Muhammadiyah and Nahdlatul Ulama.
"The government does not know how to work with the poor," charges social
activist Erna Witular. She cites cases where locals placed under government
work schemes earn less than the handouts they were receiving before.
Still, the government's efforts have not been totally ineffective. An
independent monitoring agency set up by foreign donors says that a program
distributing cheap rice to six million families is working, as are the
scholarship and health programs. Herman Haeruman, chief of PDM-DKE, admits
that the disbursement of money is inescapably influenced by local politics,
but insists that Cirebon is one of the few complaints out of the 65,000
villages in which the program is active.
It may well be that the basis of the criticisms against how the government
uses its money is not a technical but a political question: whether the
current administration, considered out of touch and unpopular, has the
right
to spend so much money. After all, before the Crisis those who ran
Indonesia
gorged at tables heaped with private foreign capital. Now many of the same
folk partake of the overseas aid. In both cases, those ultimately stuck
with
the bill are ordinary Indonesians.
"At the moment, the social safety net has become the focus of concern by
the
international community," said former finance minister Mar'ie Muhammad
recently. "The problem that remains is whether we can do it right or
continue
with the old habits." The answer to that will be the difference between
money
well spent - and money once again wasted.