Govt wants to end tied loans by 2012

Tuesday, 9 February 2010

The Jakarta Post

Under the Jakarta Commitment the government is aiming to eliminate tied loans and direct Indonesia’s development programs independently by 2012, the National Development Planning Board (Bappenas) says.

On Monday Bappenas met 26 foreign donors, which it calls “development partners”, to review the roadmap for the Jakarta Commitment that was signed on Jan. 12 last year.

The commitment is in line with the Paris Declaration to ensure aid use — grants and loans — for development.

Tied aid means foreign aid that must be spent in the country that provides the loans. For example, Japan’s loans must be used to purchase goods in Japan. It can also mean loan recipients’ development priorities are subject to lender’s approval.

“In 2012 we want to be in the driver’s seat. Now we are in the process of working to convince them that we are on the right track,” Bappenas first secretary Syahrial Loetan said.

At present, tied loans accounts for between 30 and 40 percent of total foreign loans outstanding.

Finance Ministry data shows that as of 2009 the government had borrowed Rp 610 trillion (US$64.66 billion) in foreign loans. In the same year the total figure of loans outstanding (including rupiah) was Rp 1,589 trillion.

This year the government plans to borrow Rp 49 trillion in gross foreign loans. It also plans to repay foreign debts, reducing its nett foreign debt by Rp 9.9 trillion.

Tied loans has been criticized by activists, as seen in demonstrations last year during the annual meeting of the Asia Development Bank (ADB) in Bali.

Syahrial said the meeting on Monday was an effort by Indonesia to inform its development partners of the Jakarta Commitment.

Some of the partners already follow certain rules under the commitment, he said. “The UK Department for International Development [DFID] followed our regulations for climate change documents,” he said.

Syahrial said the government aimed to reduce loans to 24 percent of the country’s gross domestic product (GDP). Last year, outstanding loans amounted to 30 percent of GDP.

According to the Finance Ministry, the government has worked to expand the bond market to reduce dependency on foreign loans.As of 2009, the government had issued Rp 979 trillion in bonds.

National Development Planning Minister Armida Alisjahbana said the government was reviewing procurements with components of foreign loans and grants.“If they want to follow suit [with the new rules] we will accept [the loans or grants],” she said.

Bappenas has just finished revising a presidential decree on the procurement of goods and services, as part of the government’s first 100-day program. The revision is expected to accelerate procurements.