Indonesia
Consultative Group Meeting |
| Statement by Mr. Ken Yagi Deputy Director-General International Bureau, Ministry of Finance, Japan Mr. Chairman, distinguished delegates, ladies and gentleman: 1. ECONOMIC REFORM EFFORTS BY THE GOI Macroeconomic stability and firm implementation of a structural reform agenda are essential for the sustained growth of the Indonesian economy. From this standpoint the 10-point Economic Recovery Acceleration Program that Minister Rizal Ramli announced is significant - in that it shows the focal points of the reforms. It is also encouraging that the new economic team submitted the new Letter of Intent and reaffirmed its commitment with full ownership to the IMF program. It is welcomed that the second review of the program was completed last month. It is important that the Govmment of Indonesia continue rapidly and firmly implementing the reform agenda included in the IMF program, which is a precondition for the implementation of the rescheduling of the debts agreed by the Paris Club creditors including Japan. By making strong reform efforts, Indonesia will benefit from the enhanced market confidence based on the improved perception on the part of international community, and from a favorable macroeconomic environment, including a stable exchange rate and declining interest rate. At the last CGI meeting held this February, we pointed out that the following two areas in particular need to be addressed urgently: (a) fiscal consolidation and domestic resource mobilization and (b) bank and corporate restructuring. We think these areas deserve further emphasis this occasion. 2. FISCAL CONSOLIDATION In view of the accumulation of huge external debts, fiscal consolidation is one of the most important policy agenda for the Government of Indonesia, as the State Policy Guideline states the need to decrease the fiscal deficit and lessen dependence on foreign assistance. The goal for the Government of Indonesia will be to establish a fiscal structure so that it will be able to graduate from the Paris Club rescheduling after the present consolidation period ends in March 2002. The FY2001 budget submitted to the Parliament early this month is a good starting point toward this goal. We welcome the containment of the fiscal deficit and the decrease in dependence on foreign borrowing under the conservative estimation of oil prices. It is also encouraging that the Government of Indonesia has provided medium-term indicative targets for fiscal policies, such as the ratios of fiscal deficit to GDP, domestic financing to fiscal deficit, and public external debt to GDP. Japan hopes that the Government of Indonesia will continue its efforts for fiscal consolidation in line with these targets. In addition, it is important to strengthen facilities for domestic resource mobilization, such as stable issuance of medium- and long-term domestic bonds. Japan plans to extend technical assistance for public debt management and development of the domestic bond market as requested by the Ministry of Finance of Indonesia and the Bank Indonesia. The most important challenge in securing medium-term fiscal sustainability is "fiscal decentralization" as it involves huge risks on several fronts: economic, social, and political ones. The Government should proceed in a decisive but pragmatic manner in implementing "fiscal decentralization". The balanced fund stipulated in the FY2001 budget provides an appropriate safeguard to the risk "fiscal decentralization" poses. The Government of Indonesia should maintain fiscal neutrality by implementing fiscal transfers to the local governments in line with the transfer of functions. Fiscal neutrality is particularly important from a donor's viewpoint in the sense that this will affect the soundness of the fiscal position of the central government and thus its ability to repay public external debt. In addition, it is important to establish an appropriate rule on the allocation of funds to each local government. Japan dispatched an expert under a technical assistance program in this area. 3. BANK AND CORPORATE RESTRUCTURING In the area of bank and corporate restructuring, what should be done is clearly stated in the Letter of Intent. Japan expects the new economic team will take leadership in implementing reforms in these areas. Although we should give due consideration to factors outside the control of the authorities, including those affected by the market, it is necessary for the Government of Indonesia to make utmost efforts for the implementation. These areas are core to the EFF program and the market is closely watching progress in these areas. Japan strongly expects that the Government of Indonesia will continue to implement economic reforms in cooperation with the international community. Japan has consistently backed and will also continue to support the efforts of Indonesia for economic reform. Thank you. |