Indonesia price rise delays may hurt IMF talks: Report

Indonesia's decision to scrap a rise in telephone charges and review higher fuel and electricity rates may threaten approval of loans from international lenders linked to economic growth and social stability, analysts said as reported by Bloomberg on Monday.

The government meets the Consultative Group on Indonesia, a collection of more than 30 donors that includes the World Bank, the Asian Development Bank, the U.S., Germany and Japan on Tuesday and Wednesday, seeking aid needed to plug the nation's 34.4 trillion rupiah ($3.9 billion) deficit.

?Any departure from the plan will be seen as backtracking,? said David Cohen, an economist at MMS International in Singapore. ?Indonesia's demonstration of fiscal discipline is key to donors.?

Jakarta needs to convince the CGI it's making progress in managing state finances by adopting tough policies, selling state- owned assets to boost efficiency and controlling inflation to spur consumer demand and growth.

Indonesia will need between $2.4 billion and $2.8 billion in loans this year, following $3.14 billion pledged in 2001, to help fund its budget deficit, the World Bank said.

Ten days of demonstrations in major cities prompted the government to back down from price increases that would have provided more funds to stimulate growth and improve security in a country rocked by a nightclub bombing in Bali in October. While largely peaceful, the mass protests are the most serious signs of discontent against the 19-month-old administration.

?If the government is spending to subsidize fuel, then less money is available to do things that Indonesia really needs,? Andrew Steer, the World Bank country director, said last week.

Consequences

After the October bombing, Indonesia cut its 2003 economic growth target to 4 percent from 5 percent and raised the inflation estimate to 9 percent from 8 percent.

The World Bank sees Indonesia containing inflation at 9 percent, against 10 percent last year, and holding the rupiah steady at 9,000 a dollar after a 16 percent gain last year.

It's less optimistic about the economic outlook, forecasting between 3 percent and 3.5 percent growth, slower than the 3.6 percent recorded last year.

?Security issues will get attention because it has economic consequences,? said Sam Zappia, counselor of development cooperation at the Australian Embassy. ?To restore investor confidence, an environment conducive to investment needs to be created.? (*)