Urip Hudiono, Jakarta – In the latest – and somewhat populist – take on the politically sensitive issue of foreign borrowing, President Susilo Bambang Yudhoyono said Indonesia no longer needs its main creditors and donors grouping – the Consultative Group on Indonesia (CGI) – and will rely more on its own resources for development funding.
"Indonesia no longer needs the CGI," Yudhoyono told the media after receiving visiting International Monetary Fund (IMF) managing director Rodrigo Rato at the Presidential Palace on Wednesday.
"I consider it beneficial to end the format that we know as the CGI forum. Last year, we rescheduled it, and in this year of 2007, I say now that there is no longer any need for the existence of the CGI forum, as before."
The government postponed its annual meeting with the CGI last year, although it later accepted the group's pledge of US$5.4 billion in new loans and grants to help Indonesia finance the budget deficit and support development programs.
This was up from the CGI's 2005 pledge of US$3.4 billion, plus an additional $1.2 billion in support for the relief efforts following the Aceh tsunami disaster. The CGI, formed in 1992 as the successor to the Inter-Governmental Group on Indonesia (IGGI), comprises 21 member countries and 11 multilateral agencies. Its largest contributors are Japan, the Manila-based Asian Development Bank (ADB), and the Washington-based IMF, and the World Bank, which also chairs the group.
During its annual meeting with the government, the group usually assesses Indonesia's economic progress and financing needs prior to determining its aid offers, leading to criticism that the aid is tied, thus interfering with Indonesia's sovereignty, or is in the form of loans that "burden the nation".
Indonesia has an outstanding foreign debt of some US$60 billion – or 40 percent of gross domestic product (GDP) – and has to pay out Rp 54.8 trillion ($6 billion) on debt principal repayments and Rp 26 trillion on interest this year alone.
Yudhoyono said Indonesia can now assess and plan its own development needs without the CGI, and plans to continue reducing its foreign debts.
"We can now overcome all this, so there should no longer be involvement or assistance on the part of the CGI," he said, adding that the government had no plans to seek new loans from the IMF or other institutions.
Yudhoyono's statement on the CGI comes after Indonesia repaid all its debts to the IMF last year, and criticism of de Rato's visit from both right and left-wingers.
Yudhoyono further said that his decision on the CGI would make it incumbent upon the Indonesian people to determine development targets and how they would be funded. He urged all involved to prepare better development and budget plans.
Commenting on the President's decision, noted economist Faisal Basri from the University of Indonesia (UI) warned the government to exercise prudence as this year's budget alone needed Rp 40.2 trillion in foreign loans to help plug a deficit of Rp 40.5 trillion, or 1.1 percent of GDP.
"It (the decision) is possible, but the government must really prepare alternatives for budget financing and improve its debt management," he said.
"Let's hope this is not some sort of display of bravado intended to keep the anti-foreign-debt lobby happy. This is not like paying off the IMF debt, which did not affect the budget. What happens if the government's economic team turns out to not be able to manage the budget without the CGI money?"
Faisal said the only alternative would be to issue more government bonds, which could led to market saturation at a time when many companies were also considering turning to the bond market as an alternative to costly bank borrowing.
Issuing more global bonds, meanwhile, would be unfavorable amid the recent volatility on world financial markets. In addition, it had to be remembered that bonds were also debts, and carried even higher interest rates.
"Privatization will always face staunch nationalistic resistance, and hastily raising taxes would only hurt the public," he said. "Every government policy and decision should consider what is best for the entire nation."