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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

ACCOUNTING FOR PAST SINS

The use and misuse of Indonesia's huge loans

By Jose Manuel Tesoro / Jakarta


IN JAKARTA, A SMALL publishing industry has sprung up around the exposure of open secrets. The failings of the country's system, once often discussed but rarely printed, are now the subject of books with such titles as Following the Roots of Indonesia's Crisis. These publications are usually retrospective; somewhat less ink has gone into understanding current and future ramifications - like the huge foreign debt Indonesia has incurred because of its implosion.

The lion's share of the bailout for Indonesia came in the form of loans, with maturities, conditions and compounding interest. At the end of 1998 Jakarta owed about $20.5 billion to the World Bank and the International Monetary Fund - or about 50% more than what it owed a year earlier. To the Asian Development Bank, its other major multilateral donor, Indonesia owes an additional $1.16 billion in Crisis-related loans. And these totals do not include debts to foreign governments. (At the end of 1997 - before the meltdown - total bilateral borrowing already stood at $21.6 billion.)

Although the loans themselves are given on concessionary terms (fair interest rates, a few years' grace period before repayment and maturities that stretch into the decades), that does not reduce worries over how the government is using - or misusing - the funds. IMF loans had strict conditions specific to shoring up reserves and defending the currency. But there are billions in other lending that go straight into the budget, which can be used anywhere from paying civil-servant salaries to servicing payments on earlier borrowings.

These days, government spending is almost never uncontroversial - not the bank recapitalization, not the cheap credit for small- and medium-scale enterprises, not even the subsidized food and employment programs. The last is a case in point: In its 1998-99 budget, Jakarta set aside 9.36 trillion rupiah (about $1.1 billion at today's rates) for "food security, social protection and work schemes." But the government's social safety-net programs have come under fire for being rushed, badly designed and open to corruption.

Take PDM-DKE, a state-sponsored program that works with non-governmental organizations to fund local food and employment projects. In February, 11 PDM-DKE facilitators in Cirebon, West Java, resigned, accusing an NGO of skimming off funds and paying kickbacks to government officials. There are indeed many complaints about so-called "red-plate" NGOs (the nickname refers to the license plates on government vehicles). These groups have been created by former or serving civil servants and their relatives allegedly to take advantage of funds in the same way that, during the Suharto years, well-connected officials formed companies to feast off government contracts.

In the years of the boom, according to one reported estimate, some 30% of World Bank funding was siphoned off by corrupt officials. "You can't look at what happened to the World Bank and not be worried," says one Western ambassador. That could be part of the reason some donors have been bypassing the government altogether. The United States Agency for International Development is sending $6.8 million worth of food aid to needy Jakarta residents through the charity group World Vision International. Both Singapore and Japan distributed part of their emergency assistance last year through mass Muslim organizations Muhammadiyah and Nahdlatul Ulama.

"The government does not know how to work with the poor," charges social activist Erna Witular. She cites cases where locals placed under government work schemes earn less than the handouts they were receiving before.

Still, the government's efforts have not been totally ineffective. An independent monitoring agency set up by foreign donors says that a program distributing cheap rice to six million families is working, as are the scholarship and health programs. Herman Haeruman, chief of PDM-DKE, admits that the disbursement of money is inescapably influenced by local politics, but insists that Cirebon is one of the few complaints out of the 65,000 villages in which the program is active.

It may well be that the basis of the criticisms against how the government uses its money is not a technical but a political question: whether the current administration, considered out of touch and unpopular, has the right to spend so much money. After all, before the Crisis those who ran Indonesia gorged at tables heaped with private foreign capital. Now many of the same folk partake of the overseas aid. In both cases, those ultimately stuck with the bill are ordinary Indonesians.

"At the moment, the social safety net has become the focus of concern by the international community," said former finance minister Mar'ie Muhammad recently. "The problem that remains is whether we can do it right or continue with the old habits." The answer to that will be the difference between money well spent - and money once again wasted.


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