Consultative Group for Indonesia urges government to maintain stability and deepen reform

Meeting of Donors Concludes with $2.7 billion Pledge in Disbursements for 2003
At the end of two days of deliberations, the Consultative Group on Indonesia (CGI), comprising representatives of 30 bilateral donors and multilateral agencies called on Indonesia to redouble its efforts to improve the climate for investment as a means to stimulate growth and poverty reduction.

The meeting was also attended by 11 Government Ministers and representatives of civil society. The 12th meeting of the CGI noted significant progress in stabilizing the economy but pointed to a large unfinished agenda of reforms, especially those needed to deal with corruption, governance, forestry and legal reforms. The CGI also congratulated the Government on signing a ceasefire in Aceh, and for its response to the Bali bombing of last October. Donors stressed that continued attention to security would be an important ingredient of rebuilding confidence in Indonesia as a tourist destination.

The Bali bombings, it was argued, lent new urgency to Indonesia's reform efforts. In this context, they welcomed the statement by Mr. Dorodjatun Kuntjoro-Jakti, Coordinating Minister for the Economy that the Government will place more emphasis in 2003 on micro-economic issues particularly those related to the investment climate. "The investment climate is the most significant obstacle to accelerating growth from the recent rather modest rates and thus for reducing poverty and vulnerability," said Jemal-ud-din Kassum, World bank President for east Asia and the Pacific Region and Chairman of the CGI.

The meeting of donors concluded by pledging up to $2.7 billion in disbursements in fiscal year 2003, a figure within the range of the Government's total budgetary requirements of $2.4 - 2.8 billion. "This represents the lowest requirement from the CGI since the crisis - and that is good news," said Mr. Kassum. "It means Indonesia's need for budget financing is diminishing as its fiscal deficit is falling steadily."

CGI members welcomed the significant progress Indonesia had made in its macro-economic program and asset restructuring. The recognition of this progress by financial markets through a strengthened Rupiah and lower interest rates has facilitated strong fiscal consolidation and enabled a sharp reduction in Indonesia's public indebtedness as a ration to GDP from nearly 100 percent at the end of 2000 to 70 percent in 2002.

"Thanks to significant achievements in 2002," said Daniel Citrin, chief of the visiting IMF mission, "the Government has begun to lay a solid foundation for Indonesia's economic recovery from the crisis." Donors expressed continued support for Government action to move untargeted price subsidies to more targeted programs for the poor, including provision of health cards and rice for the poor. Donors recognized, however, that such actions were often delicate and controversial, and should be accompanied by better communications and consensus building.