Pidato Bahasa Inggris : Statement of the State Minister for National Development Planning

Pidato CGI 1 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
Statement of the State Minister for National Development Planning/
Chairman of National Planning Agency
at the Consultative Group Meeting on Indonesia
Jakarta, 7-8 November 2001
Effective Use of Foreign Aid
Excellencies, Ladies and Gentlem en:
When I was giv en the task to prepare a speech with the topic: Effectiv e Use of Foreign Aid I was im m ediately faced
with a dilem m a. On the one hand, it is m y duty as a gov ernm ent official to present to y ou our policies and progress
on the effectiv e use of foreign aid. On the other hand, I feel totally em barrassed to be confronted with the task to
justify an activ ity , which essentially am ounts to begging for debt on behalf of our nation. This feeling is m ade ev en
worse by the fact that our total stock of debt has exceeded all lim itations of sustainability and prudence, as well as the
fact that I can not prom ise y ou that som e of this new debt will not be corrupted again as it has been in the past.
I decided to stand in front of y ou today because I know that without new lending from friendly creditor nations, our
people m ay hav e to endure ev er worsening hardships and pov erty .
As we all know, this forum will end with pledges from CGI m em bers. Since the form ation of IGGI, the largest
com ponent of such pledges hav e been in the form of debt and interest pay m ents that m ust be repaid. I would like to
m ake an im portant clarification that such pledges should be referred to as loan pledges rather than aid pledges.
There are indeed com ponents of these pledges that will com e in the form of grants which do not hav e to be repaid.
Such grants can indeed be referred to as aid. It is v ery im portant to m ake this clarification and distinction before
starting a discussion on the requirem ents and effectiv eness in using such loans and grants.
There is a large difference in m easuring the effectiv eness of a loan and the effectiv eness of aid. Aid should be
m easured by the extent to which it reaches the intended target. Aid disbursem ents do not hav e to be returned or
repaid. Aid also does not com e with periodic interest burdens. As such, effectiv eness m easurem ent of aid is fairly
straightforward, nam ely whether or not the aid reaches its intended target optim ally . Aid can be used to fund
projects that do not necessarily prov ide econom ic added v alues. Aid does not need to produce positiv e cash flow. Aid
funding is considered effectiv e if it reaches its target without waste or corruption.
A loan or credit is v ery different than aid. A loan can only be considered effectiv e if the project funded by the loan can
produce enough positiv e cash flow to repay both the principle and interest in accordance with its agreed upon
pay m ent schedule. Therefore, the funding used to repay the principal and interest of a loan on a tim ely basis should
be deriv ed from the added v alue generated by the relev ant project, not by sim ply liquidating or selling the project.
What we hav e today is a gov ernm ent experiencing a sev ere liquidity shortfall, y et obligated to pay the principal and
interest in accordance to international standards of gov ernm ent loan agreem ents. Because the gov ernm ent does not
hav e the requisite funding to pay the principal and interest due, and because there is little that the gov ernm ent can
do to generate liquidity , the international com m unity has no choice but to reschedule loan principals which hav e
Pidato CGI 1 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
com e due. But what about the interest? What if the gov ernm ent does not ev en hav e enough m oney to pay interest?
Would the international com m unity allow us to reschedule interest pay m ents? In fact, this tim e we hav e no choice
indeed, but to request for a rescheduling of interest pay m ents, and we shall eagerly wait and see how the m em bers of
Paris Club III will respond to this request.
Let m e get back to the different way s a loan can be repaid. The first way would be repay ing the loan from cash flow
generated by v alue added activ ities. In essence, the loan will be liquidated by v irtue of the projects ability to create
wealth or added v alue. The project and its ownership stay s intact and all the m achines or infrastructure within the
project will continue to function productiv ely , ev en after principal and interest pay m ents are facilitated. This is
consistent with a v ery rudim entary principle about loans, in that it should hav e a self-liquidating character.
But if the project funded by a loan fails to create wealth or added v alue, the project itself m ay hav e to be sold or
liquidated, and the proceeds used to repay the loan. This is what is currently taking place in Indonesia. Loans are now
repaid by selling or liquidating the projects funded by the loans.
I would like to use an exam ple from the business world. Picture an entrepreneur who builds a factory funded by a
loan. After operating the factory for som e tim e and failing to generate added v alue, the entrepreneur sells his factory
in order to repay the loan. He then obtains a new loan and starts a new factory . Again, the factory failed to create
wealth and the entrepreneur sells the factory to repay the loan. This entrepreneur will not be considered v ery adept
at running his business and m ay not get a new loan the next tim e around.
Yet, this is exactly what has happened in Indonesia, both in the priv ate sector as well as in gov ernm ent. We all know
the extent of the shortfall and pressure in our gov ernm ent budget. For decades, loans to the gov ernm ent of Indonesia
has not been used effectiv ely . It has not created wealth or the v alue added necessary to repay such loans. In addition,
since the crisis of 1 997 , the gov ernm ent has not only been burdened by its own loan repay m ents, but also by the
m assiv e theft and corruption perform ed by a handful of conglom erate owners. I dont need to detail this any further,
as I am sure y ou all are fully aware of these facts.
How could all of this hav e happened? The answer is clearly that for decades the gov ernm ent of Suharto has not
utilized the loans effectiv ely , the requirem ents and prudential principles for utilizing the loans were not followed
and, m ost im portantly , a large portion of these loans were corrupted.
Excellencies, Ladies and Gentlem en,
I hav e spoken like this all too often. I hav e been rem inded by senior econom ists, m any of whom hav e had or still hav e
im portant roles in the m anagem ent of our econom y , that I should stop looking in the rear-v iew m irror and start
looking into the future.
Yet I refuse to take this adv ise, especially when it com es from the sam e econom ists who play ed a large role in turning
Indonesia into a nation of beggars. Your excellencies, these are the sam e econom ists that com pletely m ism anaged our
foreign debt and drov e our country into its current hardship. In relation to this, I would like to quote President
Megawati from a speech she m ade during her recent trip to Toky o. She said: isnt it nice that the sam e people who
totally destroy ed our debt m anagem ent can still giv e us all sorts of adv ise?
Pidato CGI 1 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
A way of thinking that prev ents us from looking into the past is totally absurd and narrow. We m ust look into the
past often and continuously if we want to prev ent ourselv es from m aking the sam e m istakes all ov er again. It is also
im portant to look into the past v ery carefully and diligently if we want to find a solution to the m istakes that were
m ade. In order to find an appropriate solution, it is alway s useful to understand the cause of the problem . Dev eloping
econom ic policy without learning from history , is akin to a doctor that prescribes treatm ent without rev iewing the
patients m edical record. It is sim ply a dangerous and, often, a futile exercise.
I dont look into the past to entertain m y self and sadistically enjoy the suffering endured by our nation. I look into the
past to find causes and effects of problem s and to find way s to prev ent sim ilar causes and effects in the future. So it is
ultim ately unfair and unjust if they who m ade these m istakes in the past now m anage to cling to power and attem pt
to bury the past. They prev ent honest and well-intentioned people to find proper rem edies by properly understanding
the causes and effects of past corruption and m ism anagem ent.
I hav e also been criticized for being too repetitiv e in pointing out the m istakes and problem s of our foreign debt
m anagem ent. Again, this is a criticism that I cannot sim ply accept. Why dont these sam e people criticize Coca-Cola
or McDonalds. These com panies also repeat their m essage ov er and ov er again to im prov e the sales of their products.
Isnt it m uch easier to understand these consum er products than the com plexities of foreign debt exposure and the
resulting liquidity problem s? Are they bored of the repetitiv eness, or are they afraid that repetitiv eness will
ev entually uncov er the sins of those who criticize.
Regarding our dom estic debt, which has now reached at least 650 trillion rupiahs, I hav e also been criticized for
talking to m uch about the problem s caused by such a large exposure. Again, I am suspicious that these are not
constructiv e criticism s. These are criticism s intended to cov er and bury prev ious injustices. These are also criticism s
intended to appear intelligent in order to cling to power. These criticism s com e from the sam e bureaucrats who
allowed bank owners to repeatedly v iolate legal lending lim its, channelling large sum s of depositors m oney into their
own com panies through m arked-up lending. The facts are ov erwhelm ing. Just take a look at IBRA. The problem s
that continue to persist in the Indonesian recapitalized banking sy stem is still construed by sev eral analy sts as a
ticking tim e bom b. Unfortunately m any in our gov ernm ent continue to practice ostrich politics. We stick our head
in the sand when faced with difficult questions.
Off-course, what we are discussing today are not non-perform ing loans of the priv ate sector, but loans to the
Gov ernm ent of Indonesia from creditor nations who hav e gathered in this room today . Are these debts also corrupted,
so we can no longer repay them , ev en when we continue to dig a hole to close another ? For m e the answer is v ery
clear. Professor Sum itro Djojohadikusum o, the founder of the School of Econom ics of the m ost prestigeous Univ ersity
of Indonesia, and thus v ery well respected guru of the gov erning technocrats, once stated that no less than 3 0% of the
loans prov ided to the Gov ernm ent of Indonesia had been stolen. This m eans that at least 3 0% of y our loans had been
stolen. So Professor Tinbergen, who was one of m y fam ous teachers was indeed correct. As far back as the fifties he
was already worried that foreign lending has a tendency to transfer the wealth of the poor people in rich countries to
the rich people in poor countries. This is exactly what has happened in Indonesia.
The crux of all problem s is of course corruption. But not lim ited only to corruption of em bezzling m oney , but
corruption of logical and m oral behav iour and predispositions. Am ong others, such predispositions hav e giv en rise to
self deceit in our gov ernm ent. A deficit budget is said to be balanced. Loans that hav e to be repaid with interest are
called dev elopm ent incom e. Creditor nations are called donor countries. Ev en the title of m y speech that was
Pidato CGI 1 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
giv en to m e still used the work aid and not loans. Som etim e back, when our debt serv ice ratio increased to 20%,
the econom ic m inisters of Indonesia said that the debt serv ice ratio is not an appropriate benchm ark any longer. A
m ore appropriate m easure would be debt as a percentage of GDP, which was still considered low. So lending continued
to be fuelled by the corrupt m ind set. New loans were used to cov er obligations of old loans. When this was no longer
possible, like it or not, we were forced to beg for the restructuring our loans. This took place in 1 999, in 2000 and
now, again, through the com ing third Paris Club.
Excellencies, Ladies and Gentlem en,
If I look into the past again, the conclusion is v ery sim ple. The requirem ents for getting a new loan should be fairly
straightforward, nam ely stop corruption. To m ake the loan m ore effectiv e its the sam e sim ple form ula: stop
corruption. Again, by corruption I dont m ean sim ply siphoning off funds, but also allowing our m indsets and
m orality to be corrupted by self deceit and cheating the public.
I fully realize that the gap between say ing stop corruption and realizing it is as large as the gap between heav en
and earth. Corruption in Indonesia has m etam orphosed into a key com ponent of the Indonesian liv elihood and
culture. Its becom e a way of life and has spread deep into the roots of society . I am faced with the problem s of
corruption ev ery day . Nonetheless, no m atter how heav y a burden and difficult it is to eradicate corruption, we m ust
continue to recognize that it is the prim ary cause of our m aladies and hardships, and we m ust alway s continue our
attem pts to stam p it out.
Indeed, eradication of corruption, or ev en a significant reduction in corruption, cannot be accom plished ov ernight.
About m ore than twenty y ears ago, Moham m ad Hatta, one of the founding fathers of our nation, was appointed as a
m em ber of an Anti Corruption Taskforce under the leadership of Mr. Wilopo. Back then, he already stated that
corruption in Indonesia has already becom e a cultural trait. In October of 1 987 , acting as the spokesperson for PDI in
parliam ent, I stated for the record that PDI has noted that corruption has becom e a serious and worrisom e issue.
Besides financial losses to the nation and losses to the well being of our people, corruption has destroy ed our character,
becom e a way of life and ruined the m entality and m orality of a large proportion of our population. From high
ranking officials to ordinary people, from adults to children, we hav e becom e used to falsify ing docum ents, bribery ,
cheating and deceit. Ev en parents take pride in how their children obtain driv ers licences by bribing the police when
they hav ent reached the qualified age.
Today , with m uch sorrow and regret I m ust say that corruption has not m uch im prov ed since the downfall of
Suharto. In som e cases, it has ev en gotten worse. So, what does this all m ean? Since 1 987 , I hav e been repeating the
sam e them e ov er and ov er again while experiencing increasingly wild, brutal and dam aging corruption. Yet, I would
like to appeal for our honest diagnosis of the problem . Corruption cannot be eradicated in a short tim e fram e. Please
realise that the loans that y ou are about to prov ide are loans that are giv en under duress, and still prov ided in a
corrupt env ironm ent as we hav e today .
Excellenties, Ladies and Gentlem en,
The rem ainder of m y speech focuses on the discussions of four specific issues which show y ou the efforts that hav e
been taken by m y Departm ent to rem edy the challenges faced by our budget. The issues include : the changing
portfolio com position, coordination of foreign borrowing, fiduciary responsibility and on-lending policy . Howev er, in
Pidato CGI 1 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
the interest of tim e I will stop here and leav e it up to y ou to read the rem ainder of the speech that will be distributed
to y ou.
Thank y ou v ery m uch.
The Project Portfolio:
The collaboration between the gov ernm ent and creditors ov er the last few y ears has resulted in a significantly
adjusted project portfolio. In particular we hav e cut m any projects that no longer m eet our needs. This frees up funds
and policy m aker tim e to address other issues. Howev er, this is a dy nam ic process and we will hav e to continue to
adjust as decentralization continues. There is progress though and disbursem ents hav e im prov ed and the ov erall
portfolio rating is better. Dev elopm ent projects are finally beginning to hav e an im pact on the econom y again, really
for the first tim e since the crisis.
Central Gov ernm ent Coordination:
The issue of aid coordination within the central gov ernm ent has been resolv ed. The Ministry of Finance will continue
to hav e responsibility for signing loan agreem ents on behalf of the gov ernm ent. Howev er, the President has
designated Bappenas the institution responsible for the coordination of foreign borrowing. Specifically Bappenas is to
work with m ultilateral institutions and bilateral gov ernm ents, executing agencies and regional gov ernm ents to
dev elop program s at the sector and sub-sector lev els. These sector and sub-sector program s will prov ide the guidance
for actual projects to be put together by the executing agencies, regional gov ernm ent institutions and the Ministry of
Finance. Executing agencies and regional gov ernm ents will then im plem ent these projects.
To m ake this clearer lets take a hy pothetical sector, for exam ple health. In this case within the gov ernm ent,
Bappenas will work with the foreign creditors and the Ministry of Health to dev elop sector priorities in prev entiv e
care, Puskesm as support, or ev en hospitals. We will agree on ov erall budgets lev els for program s and criteria on who
m ight qualify . The Ministry of Finance will then work with the Ministry of Health and the regions to determ ine
where facilities will be built or serv ices deliv ered. Finally , the regional gov ernm ent institutions will be responsible
for the deliv ery of serv ices.
Finally , Bappenas will continue to m onitor and ev aluate on-going projects to allow us to better work with y ou on
future project dev elopm ent. Form al ev aluations and audits will rem ain the responsibility of the Ministry of Finance,
the line m inistries, regional authorities and audit bodies.
Fiduciary Responsibility:
There are a num ber of issues related to fiduciary responsibility but the m ost im portant is the conflict ov er the use of
local gov ernm ent procurem ent rules and regulations. Som e local gov ernm ents assum e that autonom y allows them
to establish their own arrangem ents for procurem ent and financial m anagem ent. Howev er, this is not so and
procurem ent is regulated by Keppres 1 8. There is a hierarchy of laws and Peoples assem bly guideline III/MPR/2000
m akes it clear that regulations do not supersede Presidential Decisions. We will insist that regional gov ernm ents
follow national procedures that insure best practice, equity , and accountability . Nev ertheless, regional gov ernm ents
m ust also understand that it is in their own best interest to adopt these principles. Existing procedures are designed to
Pidato CGI 1 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
increase com petition and reduce corruption but m ore im portantly regions will not qualify for funds under foreign
assistance if they do not follow national guidelines including those laid out in Keppres 1 8.
In the longer run m ore is needed in to im prov e procurem ent standards. To sy stem atize the process we are working to
dev elop an um brella institution called the National Public Procurem ent Office. Specifically the NPPO will be tasked
with: setting legal, regulatory and policy standards for procurem ent; m onitoring and ev aluating com pliance
nationally ; dev eloping procurem ent capability in the regions through professional training; and dev eloping public
cam paigns and m easures to induce com pliance with best practice.
Finally we hope that the Partnership on Gov ernance Reform will also be able to play an effectiv e role in reducing
corruption and im prov ing fiduciary responsibility . This forum links stakeholders in Indonesia including the
gov ernm ent, the priv ate sector and civ il society with the foreign partnerss. Your support for this process com bined
with a free press and an energized civ il society should be an effectiv e weapon in reducing corruption.
On lending and decentralization:
This has been a particularly difficult and confusing area. Clearly aid agencies cannot deal directly with ov er 400
districts and prov inces. Howev er, these regions are tasked with im plem enting dev elopm ent projects that deliv er
public serv ices in their areas of responsibility . After a short transition (one y ear) we had hoped to pass these term s
and conditions through to the regions along with funds. Howev er, new loans were to be treated differently . As
regional gov ernm ents take part in project preparations they were expected to understand and com ply with term s
and conditions including repay m ents obligations. This was expected to begin in FY 2002. Howev er this tim etable is
still too am bitious and we now believ e that the transition period should be extended through FY 2002. With this
regions, that qualify , will be responsible for loan term s and conditions beginning in FY 2003 .
In addition we hav e decided that a blanket program can not work. Regional econom ic and institutional capabilities
v ary too widely . Many if not m ost regions are unwilling or unable to take on foreign obligations that entail exchange
risk at close to m arket rates. The sy stem that we put in place in FY 2003 will be rev ised. The gov ernm ent, under the
direction of the Ministry of Finance, will m ap out the econom ic and institutional capability in ev ery region. With
this m apping we will draw a distinction between regions that are capable of taking responsibility for on-lending
obligations and those that are not. Those that are capable will be allowed, under superv ision, to dev elop projects
based on foreign assistance and will be expected to m eet all of the term s and conditions thereof. Those that are not will
work in a partnership with the central gov ernm ent and will hav e their obligations taken care. Ov er tim e the regions
in this latter category should decline as the num ber of capable regions grows.
Related observations
The institutional arrangem ent and responsibilities within the central gov ernm ent, between the central gov ernm ent
and the parliam ent and with regional gov ernm ents are still ev olv ing. Determ ining and clarify ing appropriate
responsibilities in this env ironm ent is difficult and politically contentious. While we are working to sort these issues
out, it will take tim e. We had sent to Parliam ent laws on state finance, treasury and audit designed to clarify the
situation. Howev er, in retrospect, this was prem ature. We are now determ ined to m ov e slower and m ore carefully in
sorting out and codify ing these key relationships. We will withdraw these laws, rev ise them in line with changes in
our thinking and resubm it them later. In the m eantim e we ask y our patience.
Pidato CGI 1 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
The lending com m unity also has a responsibility . Indonesia is struggling with a difficult and painful transition to a
m ore dem ocratic and just society . This process is m ore difficult than we thought a few y ears or ev en m onths ago.
New passions are ignited while old ones sim m er. Ov erwhelm ing debt lim its room to m anoeuv re and policy resources
are stretched thin by crises. We m ust only address the highest priorities. Too often projects are driv en by creditor
needs and not Indonesian priorities. We also need term s and conditions as sim ple as possible as we integrate regional
institutions into our sy stem s. Finally , we need to accelerate current efforts to substitute restructured pay m ents for
new loans and for the m ost fav ourable term s and conditions on rem aining new loans.

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