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CGI loan provides certainty to state budget

JAKARTA (JP): The US$4.8 billion loan pledged on Wednesday by Indonesia's traditional donors would have a positive impact on the economy as it provides certainty to next year's state budget, experts said.

Economist Pande Raja Silalahi said the loan would help plug next year's huge state budget deficit estimated at around $6 billion or 3.7 percent of the gross domestic product.

"It is positive for the economy because it provides certainty to the budget," said Pande Raja Silalahi, an economist at the leading private think tank, Center for Strategic and International Studies (CSIS).

Donors grouped in the Consultative Group on Indonesia (CGI) pledged $4.8 billion in aid for 2001 and planned to provide another $530 million in technical assistance grants, at the end of their two-day meeting in Tokyo.

But Pande said that it was still unclear whether the House of Representatives would agree for the government to take such a huge foreign loan, particularly amid strong oil prices.

He said that the House might ask the government to take a smaller foreignloan.

"The country's foreign loans are already huge and they have now become a big problem," he said.

The government unveiled the draft of the 2001 state budget with an estimated deficit of around Rp 53 trillion or $7.2 billion based on an exchange rate of Rp 7,300.

The government has said the bulk of the deficit would be financed by foreign loans, while the remainder would be financed by the sale of assets held by the Indonesian Bank Restructuring Agency (IBRA) and the privatization program.

The government assumed an international oil price of $22 per barrel in the draft budget. But analysts and legislators have said the assumption wastoo conservative given that the international oil price had been hovering at more than $29 per barrel.

The House and the government are still debating the state budget draft and are expected to reach a final agreement sometime in November.

Meanwhile, the CGI's new loan commitment had little impact on the rupiah or the local stock market.

The announcement of the CGI loan commitment helped lift the rupiah from an intraday low of Rp 8,950 to end the day at Rp 8,895 but it was still lower than the Rp 8,845 in late trading on Tuesday.

Dealers said the rupiah remained under pressure due to fears over uncertainty in the domestic political development, particularly after the House unveiled its plan to probe into President Abdurrahman Wahid's possible role in the financial scandals.

After climbing for two consecutive days, the Jakarta Stock Exchange composite index ended 0.1 percent lower at 416.948 points.

Separately, former finance minister Bambang Sudibyo welcomed the success of Coordinating Minister for the Economy Rizal Ramli and his team in obtaining the CGI loan but questioned the conditions for the loan.

Bambang said if the conditions were too heavy, the loan would only cause problems for the economy.

He said that although CGI had always agreed to provide loans to Indonesiaduring the past several years, the conditions had gradually become heavier. "Before the (1997) economic crisis, the interest rate of the loan was between 1 percent and 3 percent but now there are donor countries who are demanding a 5 percent interest rate which is equal to a commercial loan," he said.

Bambang said that as an alternative to this loan, the government could push its privatization efforts and the sale of the IBRA assets.

Most analysts said that with the approval of the new loan, the governmentmust push its economic restructuring program, particularly the sale of assets under IBRA.

The government recently delayed a key divestment program involving the publicly listed Bank Central Asia (BCA) and Bank Niaga.

The delay had disappointed both the World Bank and the International Monetary Fund which are providing a separate multibillion dollar bailout for the country.

IBRA controls assets worth more than Rp 600 trillion. The assets had beentransferred to the agency from the country's troubled banks and ex-bank owners. (rei  

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