The Jakarta Post October 14, 2000

Atambua issue may hurt RI efforts at CGI meeting

JAKARTA (JP): The World Bank (WB) warned on Friday that improper handlingof militias in Atambuwa, East Nusa Tenggara or West Timor, might hurt Indonesia's efforts to obtain US$4.8 billion in soft loans at next week's meeting of the Consultative Group on Indonesia (CGI) in Tokyo.

"In the lead up to the Tokyo meeting, a number of donors and members of civil society have raised concerns about recent developments in West Timor," visiting WB vice president for East Asia and the Pacific Jemal-ud-din Kassum said in a press meeting.

Kassum fell short of saying whether donor countries might actually cut financial aid to Indonesia if the handling of the militias did not meet thedonors' expectation.

He said that Coordinating Minister for Political Security and Social Affairs Susilo Bambang Yudhoyono had meet representatives of donor countries in response to their concerns.

The minister, he said, briefed the representatives on the current actionstaken by the government. "Continued progress on this issue will provide a positive environment for donor support," he added.

The CGI meeting will be held between Oct. 17 and 18 in Tokyo, where Indonesia is expecting to receive US$4.8 billion in soft loans to help lower its gaping budget deficit.

However, last month's Atambua incident in West Timor, where East Timor militias killed three United Nations workers, has dent the prospect of continued international support.

The United Nations issued Resolution No. 1319/2000, ordering Indonesia todisarm and disband the militias while also restoring law and order in the region.

William Cohen, The United States' Defense Secretary warned of international isolation that further damaged foreign investors' confidence in the country.

Kassum, who will chair next week's CGI meeting, cautioned against erodingmarket confidence but he said that Indonesia continued to show signs of recovery.

"Despite jittery markets, nervous investors and fragile consumer confidence, Indonesia's economy continues to show signs of recovery," he said.

However, he said that financial markets remained unconvinced by the developments in the real economy.

Political uncertainties, regional unrest and periodic outbursts of violence combined with policy slippage on the structural reform agenda could still derail economic recovery, he continued.

Speaking to the press at the launching of the World Bank's Indonesian economic outlook report, Kassum said that in the short term, restoring confidence was key to accelerating the recovery.

The World Bank released on Friday its Indonesian economic outlook report to be discussed at the CGI meeting.

According to the report, Indonesia's economic growth had expanded to beyond a consumption driven base growth, with investments starting to contribute.

It said that inflation was under control, real wages were rising again, and that poverty had declined from a punishing peak of over 23 percent.

The World Bank emphasized the need for visible results in three key areas: bank and corporate restructuring, a carefully implemented decentralization, and fiscal consolidation.

"In the medium term, we consider poverty reduction and good governance -- which are closely interrelated -- as the central challenges for Indonesia," Kassum said.

The report said that misdirected spending shortchanged poverty programs, monopolies threatened small businesses and illegal fees and levies prevented the poor from accessing government services.

"Weak governance hit the poor the hardest," Kassum added.

Separately, Bank Indonesia issued its quarterly report on the economy, which predicted difficult times ahead.

"Generally the challenges ahead are getting tougher along with rising pressure on inflation and the weakening of the rupiah," BI's report said.

The central bank estimated inflation to rise one percent above the initial target of between five percent to seven percent.

Although the current inflation rate was still 4.65 percent below BI's target, a recent decision to hike fuel prices will likely push the consumerprice index up.

The report said that consumption growth, which had been pushing the recovery so far, had also slowed down.

However, investment activities showed signs of recovery as seen on climbing imports and a rise in banking credits channeled.

During the second quarter, investment constituted the second largest contributor to the gross domestic production (GDP), after exports, the report said.

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