Joanne Collins, Jakarta – Happy with Indonesia's fight against terror and its efforts for peace in Aceh, international donors look set this week to pledge the $2.8 billion in aid that the country is seeking.
The World Bank, which chairs a donor body called the Consultative Group on Indonesia (CGI), has already said the amount is "doable", although some donors say they are concerned about signs of government softening in one key reform area.
"The country has done its best to try and bring peace to Aceh and in arresting perpetrators of last year's Bali bombings, without a backlash from Islamic groups. So on those things alone, donors should be happy," said Jakarta-based Standard Chartered economist Fauzi Ichsan.
But the issue of price increases, the main trigger of nationwide protests in the past two weeks, could threaten to unravel some of Indonesia's hard-fought successes.
Donors, at the Tuesday and Wednesday meeting of the CGI's 30-plus bilateral donors and multilateral institutions, could decide the government is making too many concessions to the demonstrators, sacrificing much-needed economic reform in the process.
President Megawati Sukarnoputri's government has come under mounting pressure to roll back price rises in fuel, electricity and phone tariffs introduced at the beginning of the year to reduce costly subsidies that are a huge drain on the budget.
In response, the government has proposed to delay the phone charge hike and review its policy on fuel and power. But one Western diplomat said that had been enough to raise doubts over Jakarta's commitment to reform.
"Indonesia has kind of blown it with the fuel price issue. It has really shaken donors," the diplomat said.
Indonesia has been winding back subsidies, introduced by former President Suharto, since the late 1990s as part of International Monetary Fund-led reforms. Subsidy cuts were one reason Jakarta posted a sharply lower-than-expected budget deficit last year.
Asked at a news conference last week about the government's plan to review price increases, the World Bank declined to comment directly but made clear its support for the rises.
"We very much support the way the government has sought to clarify why such increases are necessary," said the World Bank's country director for Indonesia, Andrew Steer. "If one is spending a lot of government money subsidising people who are lucky enough to have electricity or lucky enough to drive cars, then there will be less money available to pay the teachers, develop the curriculum and so on," he added.
Focus on Bali, Aceh
Aside from the question of whether Indonesia is moving fast enough on economic and other reforms – such as improving the justice system and environmental policy – the meeting will focus on rebuilding strife-torn Aceh and the resort island of Bali following the bombings in which at least 193 people were killed.
Donors' support for the province of Aceh in Indonesia's far northwest corner follows a landmark peace deal signed last month between separatist rebels and Jakarta to end more than two decades of violence in which thousands were killed.
Analysts say donors will also reward Indonesia for cracking down on terrorists after the October 12 Bali bombings and for taking measures to minimise their impact on the country's fragile economy.
Police in the world's most populous Muslim nation have detained scores of people suspected of having links to the blasts and have co-operated with international investigators.
In a report released in the lead-up to the CGI meeting, to be held in Bali, the World Bank said: "The Bali bombing threatened to sink hopes for higher growth, but that risk has been mitigated thanks to the remarkable resolve the government has shown in the aftermath of the tragedy".
Asking for less
The $2.4 to $2.8 billion in aid that Indonesia is seeking from donors is considerably less than what it asked for last year and around half of what it sought two years ago. Analysts say this reflects the government's resolve to wean itself from foreign aid.
"My sense is that the government doesn't actually want to ask for a very high amount because they are becoming more realistic and are trying to depend less and less on the CGI," said Jakarta-based Citibank economist Anton Gunawan. The World's Bank's Steer also said it was a sign of good macroeconomic management.
But there is a considerable gap between pledges and actual disbursements, some of which are pegged to specific reforms. In recent years, Indonesia has received about half of the aid, which is dominated by soft loans, it has asked for.
"I imagine Indonesia will get the pledges; pledges are pain free," the diplomat said. "It's a major international meeting. Indonesia's biggest trade and development partners will be there and it's a confidence-building thing for the government and for donors who will decide whether they want to pump more money into this country."