Robert Go, Jakarta – Pressure is growing on the Indonesian government to reduce its dependence on foreign loans, with critics saying that as much as 30 per cent of donors' funds is being lost to corruption and inefficiency.

This comes at a time when analysts and regional surveys are increasingly describing Indonesia as the most corrupt place in Asia to do business.

The latest such survey, done by the Hongkong-based Political and Economic Consultancy Risk, gave Indonesia its worst score yet on the corruption scale since 1995.

Well-known economist Faisal Basri said on the sidelines of a seminar on Wednesday that the costs of borrowing money are too great, given the amount of corruption.

"Of all foreign loans, around 30 per cent get corrupted. The state loses, as it has to pay back that money. Why are we still reliant on foreign loans, then?" More criticism came in from outspoken minister for state development Kwik Kian Gie, who had said that the government has failed to maximise the benefit of having foreign loans.

He said the projects are poorly planned and there is a lack of technical expertise in most parts of the country – both of which are factors that aid corruption.

Now, there is now a growing debate within the country on the issue, with those who wish to see Jakarta take on less foreign loans emphasising that it does not make sense to keep borrowing as long as embezzlement persists.

Indonesia's outstanding loans have ballooned from US$54 billion in pre-crisis 1997 to US$72.4 billion, and economists are anxious about the payout to service this debt.

Its current debt-servicing ratio – the amount spent on repaying the debt as a percentage of export earnings – hovers around 30 per cent, far higher than the norm of 20 per cent.

This means that a third of the country's hard-earned hard currency is going towards simply paying off creditors instead of being spent on anti-poverty efforts or development projects.

But analysts believe that curtailing borrowing may not be the solution. If the government were to stop borrowing, poor communities would plunge deeper into poverty.

The good news is that donors have recognised the problem and are working out ways to keep on lending while reducing the level of corruption affecting funds.

World Bank country director Andrew Steer told The Straits Times that the bank, a main lender to Indonesia, has tightened its lending procedures. "There is evidence that World Bank projects are affected by corruption. As a result, now our projects are designed specifically to cut down the chances of corruption," he said.

In addition to international-standard accounting procedures and conducting checks on all allegations of misappropriation, the World Bank has instituted more monitoring activities and made the lending process more transparent to the public. It's up to the government and officials handling the loans to do the rest, analysts say.