September 1999: Aid hold-up threatens Indonesian economy
suspension of inter-national aid to Indonesia because of corruption
and the killings in East Timor may have only a limited short-term
impact but could delay or even foil the nation's economic
recovery, economists and bankers said yesterday.
the International Monetary Fund and the World Bank have suspended
loans until the government resolves the scandal over abuse
of government funds paid out to Bank Bali, a private bank.
senior official earlier this week implicated President B.J.
Habibie, one of his advisers and two senior ministers. An
audit by PwC has chided the central bank for failing to co-operate,
and found part of the government funds had ended up in accounts
of senior officials.
are several indications that Bank Bali was not an isolated
incident," said Mark Baird, the World Bank's Indonesia director.
Asian Development Bank said yesterday it might withhold Dollars
530m (Pounds 329m) in loans to Indonesia due in the first
quarter of next year because of its pessimism over the Bank
US, Australia and others have also threatened to withhold
aid unless Indonesia allows peacekeepers into East Timor quickly.
Paris Club of creditor nations has already delayed discussion
of some Dollars 6bn in debt relief until next year.
few of the donors mention that their suspension is unlikely
to last more than two months. By early November Megawati Sukarnoputri,
the popular opposition leader, is expected to be elected president
and form a new government, and diplomats have said the world
will be only too eager to support her.
had asked for a Paris Club meeting in September but only to
discuss debt payments coming due after April 2000, as earlier
dues had already been rescheduled. The central bank claims
Dollars 15.7bn in net reserves and the rising oil price should
boost government revenues in the third quarter.
is not really a strong demand for quick disbursements," said
Umar Juoro, economic adviser to President Habibie. "We can
handle it up to November. But the biggest problem is the negative
signal the IMF gives to the business community." Both the
rupiah and share prices have been hit but both markets remain
very thin, limiting the actual outflow of funds.
western consultant to the government countered that the aid
suspension had scared off several potential investors who
had been looking at buying seized assets from the Indonesian
Bank Restructuring Agency (Ibra), which is at the centre of
the Bank Bali scandal. Ibra had also left corporate debt rescheduling
and restructuring of the state banks on hold, he added. "The
recovery is very fragile, mainly based on a recovery of agriculture.
Industry has to contribute but no credits are forthcoming.
the banking sector a lot can still go wrong too," he added.
"The recapitalisation of all these banks has not been completed."
Moody's, the rating agency, has estimated recapitalisation
will cost at least Rp732,000bn, or about Pounds 55bn. Part
of this bill comes in next year, when the first batch of government
bonds issued for the recapitalisation start bearing interest.
Bank Bali scandal has highlighted the abuse of a government
guarantee on most bank liabilities, offered in early 1998
to halt a run on the banks. The guarantee restored depositor
confidence but it lapses in January, and members of parliament
oppose a renewal.
(C) Financial Times Ltd, 1982-1997