Donors gather for reform talks

PUBLISHED : Saturday, 21 April, 2001, 12:00am
UPDATED : Saturday, 21 April, 2001, 12:00am

International donors responsible for billions of dollars of aid to Indonesia gather in Jakarta tomorrow ahead of two days of talks with the government on economic reform.

The meeting of the Consultative Group on Indonesia (CGI) comes at a critical juncture for President Abdurrahman Wahid's administration, which is already battling to iron out differences with the International Monetary Fund (IMF), its main multilateral supporter.

Investor confidence in Indonesia has been undermined by fears of large-scale violence sparked by moves to impeach President Wahid, who faces a second censure by parliament for his alleged role in two financial scandals.

There also is gathering disquiet about the government's ballooning budget deficit, lack of progress on economic reform and mounting disarray in both Jakarta and the provinces.

These fears have combined to push the rupiah beyond 11,000 to the US dollar despite sporadic attempts by Bank Indonesia to halt the currency's downwards spiral. It hit a low yesterday of 11,500 to the US dollar.

The CGI brings together more than a dozen donor governments, including Japan and the United States, plus the Asian Development Bank, European Union, and International Finance Corp, the investment arm of the World Bank.

When the CGI met in Tokyo last October, its members pledged a total of US$5.3 billion to Mr Wahid's government. Since then, the country's entwined political and economic crises have become ever-more serious, leading some analysts to predict that Indonesia stands on the brink of collapse.

Next week's session, which will be chaired by the World Bank and concludes on Tuesday, would not seek to elicit fresh pledges, an official from the World Bank's Jakarta office said yesterday.

CGI delegates would assess the government's progress on reform - or lack of - made since last year and report on its initiatives, including loans for poverty reduction, development of small and medium-size enterprises and forestry projects.

The CGI assessments are expected to be closely linked to the IMF country review. Headed by Anoop Singh, the IMF's deputy-director for Asia-Pacific, the lender's mission has been locked in talks with government officials to restart loan disbursements.

A US$400 million tranche was put on hold four months ago because of disagreements over the pace and scope of reform, including clarification of the central bank's independent status. No agreement has yet to be struck and comments from the two sides have been low-key and contradictory.