pidato cgi 2 (dalam bahasa inggris)

8/14/2014 Pidato CGI 2 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi

http://kwikkiangie.com/v1/2011/03/pidato-cgi-2-dalam-bahasa-inggris/ 1/7

MENTERI NEGARA PERENCANAAN PEMBANGUNAN NASIONAL/KEPALA BAPPENAS

EFFECTIVE USE OF FOREIGN AID

Minister of Development Planning/Head of Bappenas

Pre-CGI Meeting in Jakarta on June 12, 2002

Excellenties,

Ladies and Gentlemen:

In preparation of today s gathering, I was asked to say a few words on the effectiv e use of foreign aid. I subsequently

discov ered that the World Bank together with my staff at Bappenas had already assembled a committee to prepare a

full speech. I hav e rev iewed this speech. I believ e it is a good speech, it is useful and it prov ides good accountability of

the gov ernments efforts in maximising the effectiv eness of loan disbursements or what is often coined as aid

disbursements. The speech also prov ides balanced explanations for the achiev ements reached and the challenges

that the gov ernment continues to face as a result of regional decentralization and autonomy initiativ es. The speech

also clearly display s the work of those people in the field who are much more knowledgeable than I am in technical

matters.

I would like to say thank y ou to the team who prepared the speech. In the interest of sav ing time, I will distribute a

hardcopy of this speech for all of y ou to read.

I must say , howev er, that I am still somewhat disturbed by the use of the word aid for instruments that are in fact

loans. In my speech at the CGI forum on the 8th of Nov ember 2001 , I discussed at length the difference between

aid and loans, with all the implications for effectiv e utilization of these instruments. That speech was also titled

Effectiv e Use of Foreign Aid, the same title that was giv en to me for my speech today . My basic v iews on the

effectiv e use of foreign aid and foreign loans remain the same as that of 7 months ago.

Therefore, rather than repeating my self, please allow me to spend a few minutes to address a much more

fundamental issue, one which has a much higher impact on the effectiv eness of foreign loans, the issue of corruption.

There are essentially two major driv ers for the effectiv eness of loan disbursements. The first one is the organizations

responsible for the loan disbursements along with its sy stems, procedures and operating processes. The second driv er

is the motiv ation, competence and integrity of the people within the organization. It is of little use to build and

structure institutions and organizations, along with sy stems, procedures, planning and monitoring, if the people that

operate and work in these institutions are morally , as they say here in Indonesia, corrupt to the bone.

As I mentioned in my Nov ember 8 speech, corruption in Indonesia is not only limited to stealing and embezzling

money . The entire mental and moral disposition, or the way of thinking, is corrupt. Therefore, the accountabilities

mentioned in the speech that was prepared by my team could be deemed incomplete and perhaps ev en irrelev ant

since it doesnt address how to reduce corruption. I would my self not dare to postulate the elimination of corruption

entirely , which I think is practically impossible. But if we can reduce corruption significantly , we will hav e come a



long way . Ev ery body talks and argues about the elimination of corruption, including the corruptors themselv es, but

nobody has ev er proposed a comprehensiv e and practical solution that addresses the root cause of the problem, which

is how to motiv ate or force people to shy away from corruption.

If we want to be honest with ourselv es, a concept to fight corruption is not complex and we can learn from many

examples, ev en from our nearby neighbours. Singapore has been v ery successful in eradicating corruption, and

China is already making serious headway s. Both places use a carrot and stick approach. In my opinion, civ il

serv ants with positions of power and influence should be paid enough to sustain a comfortable and dignified lifesty le

in order to prev ent them from commercialising their positions. But if they are prov en to steal or fulfil their own self-

interest at the expense of the state and the people of Indonesia, then they should be punished sev erely . If necessary ,

prov en corruptors should be sentenced by the death penalty such as in China.

Hav ing said that, with ov er 4 million civ il serv ants, such a straightforward concept would not be easy to implement

in Indonesia. The gov ernment simply does not hav e enough money to increase all their wages to a lev el that is

effectiv e to prev ent corruption. Ev en if the gov ernment has such means, it would still not be rational mov e. This is

because ev er since the founding of the nation 57 y ears ago, the gov ernment has nev er performed any analy sis or

introspection to determine if such a large number of gov ernment employ ees are justifiable and optimal. A carrot

and stick approach would only be effectiv e if implemented together with comprehensiv e reforms and streamlining

of the bureaucracy and civ il serv ice.

We hav e nev er heard of audits performed to determine if the organization of gov ernment departments and units are

structured to meet the objectiv es and goals of these departments and units. We often wonder if the structures of

gov ernment departments follow the strategic objectiv es of these departments or whether it is the other way around,

whereby strategy follows structure. In my experience, not only is it the other way around, but drawing organization

boxes and lines hav e become a habit and a reflex of newly installed Ministers and Department Heads. These reflexes

almost seem as an instant fulfilments to their needs to exercise newfound power.

In Indonesia, the strategy follows structure phenomena can be seen in ev ery gov ernment department. Ev en worse,

current policies dictate that all structures, sy stems, procedures, communication protocols and controls must be

uniform among all departments, irrespectiv e of the v ary ing functions and objectiv es among different gov ernment

departments. One Minister recently made a remark on this policy with an analogy . He said that if we assume the

structures, sy stems and procedures of an organization to be clothing, and the objectiv es of the organization to be a

person, then the new policy dictates that ev ery one must wear the same size shirt, no matter how skinny , fat, tall or

short the person is. How could this be possibly effectiv e?

These ty pes of issues hav e nev er been addressed sufficiently by international creditors and are not ev en stipulated in

the Letter of Intent to the IMF. This brings me to another topic.

Lately , there has been much public exposure about my v iews and wishes to end Indonesias engagement with the

IMF. In this forum, I would like to take the opportunity to explain my position. I must first emphasize that I do not

wish to quit the IMF program mid-way , let alone state go to hell with IMF as was insinuated in the press. What I

want is that both the IMF and the Gov ernment of Indonesia honour the contract, which I understand is to end in

Nov ember 2002.



If the Gov ernment decides to extend the contract for one more y ear, I am conv inced that the IMF will force the sale of

all banks owned by IBRA and the Gov ernment, ev en when these banks still hold substantial amounts of gov ernment

re-capitalization bonds (recap bonds). Each time such a bank is sold to the priv ate sector, the banks ownership of

recap bonds, which is an obligation for the gov ernment to pay interest and principal, will automatically be

transfered to priv ate hands. In my opinion, the gov ernment must first clean up and fix these banks so that they can

operate without continuous gov ernment infusion. Before being sold to priv ate hands, the gov ernment must first

remov e the recap bonds from the banks balance sheets.

Why do I mention this to y ou in this forum? Because there is no point pondering about how to effectiv ely utilize the

loans from the nations that y ou represent, if we hav e to spend between 25 to 1 7 5 times the annual new loan

disbursements to serv ice the recap bonds. You can be rest assured that the day will come when the gov ernment will

not be able to serv ice these recap bonds without either printing new money or rolling ov er principal pay ments.

We all know that during the crisis many banks that should hav e been closed were not closed because the Gov ernment

could not afford to shoulder the liquidation costs. Massiv e amounts of cash money would hav e been required to pay

back depositors and to cov er sev erance pay ments for employ ees. Instead, these banks were kept aliv e by large

injections of recap bonds, thereby ensuring positiv e capitalization of these bankrupt banks. The amounts of recap

bonds injected during the re-capitalization program were measured to achiev e a minimum capital adequacy ratio

(CAR) of 4% at the time. With interest-bearing recap bonds booked as assets in their balance sheets, these re-

capitalized banks instantly became profitable.

The idea was to keep these banks afloat by stopping the bleeding. The program was not meant to enrich the banks or

the management of these banks. Instead, it was meant to buy time while waiting for the economy and the banking

sector to improv e, which would in turn improv e the health of these banks. One may ask, what is the definition of a

healthy bank? My answer is that a healthy bank is one that is capable of effectiv ely channelling deposits into loans

while earning a positiv e interest spread. Gov ernment re-capitalized banks can only be considered healthy once their

recap bonds hav e been redeemed and they no longer depend on the interest income from the recap bonds. One way to

redeem these bonds is through accumulation of profit into capital while returning the bonds to the gov ernment when

CAR lev els exceed regulatory requirements. Once the banks no longer contain substantial amounts of recap bonds

and hav e normal loan to deposit ratios, then they could be sold to the priv ate sector.

These kind of considerations were proposed by Mr. Stanley Fisher and Mr. Hubert Neiss to Mrs. Megawati in a

discussion before she became Vice President. Mr. Laksamana Sukardi and I accompanied Mrs. Megawati during this

discussion. So what I am say ing today is nothing new. As a matter of fact, I heard it directly from Mr. Stanley Fisher

himself.

But then the Gov ernment sold BCA with ov er Rp. 60 trillion of recap bonds in its balance sheet. BCA was already

capable of producing ov er Rp. 3 .1 trillion in net profit, but the bank was sold with a v aluation of Rp. 1 0 trillion. In

essence, the buy er gets the benefit of Rp. 60 trillion in recap bonds for pay ing only Rp. 1 0 trillion. For as long as the

bonds remain in the balance sheet, the gov ernment must pay approximately Rp. 1 0 trillion per y ear to serv ice these

bonds. The gov ernment gets Rp. 1 0 trillion from selling the whole bank, but must pay Rp. 1 0 trillion per y ear to

serv ice the debt. Meanwhile, the gov ernment has lost ownership of BCA, which before the sale already had a CAR of

34.2%. If, for example, the gov ernment was prepared to reduce the CAR to 8% before the sale, it could hav e redeemed

approximately Rp. 4.8 trillion in bonds. But such a consideration was nev er giv en any thought, and I think this is an



irresponsible act by the IMF.

The IMF also reneged on their promise to follow an agreed upon sale methodology . What I had agreed with Mr. Anoop

Singh was a transparent open tender process with a minimum price. This minimum price was supposed to be sealed

in an env elope and kept by a notary public. If none of the bids exceeded the minimum price, then the sale would be

cancelled. But this was not done. Instead, the sale process was messy and flawed with political lobby ing by potential

strategic partners. Mr. Hubert Neiss, who had since left the IMF and joined Deutche Bank, ended up lobby ing on

behalf of the Farralon consortium, which we all know won the bid.

Clearly , this was not what the IMF had in mind under the direction of Messrs. Stanley Fisher, Hubert Neiss and

Anoop Singh. But now, with Ms. Ann Krueger, Mr. Horiguchi and Mr. Daniel Citrin in command, all IBRA banks

must be sold using the same methodology as the BCA sale.

Recap bonds in the banking sector today amount to approximately Rp. 430 trillion in total. These bonds hav e

different maturities and while waiting for them to mature, the gov ernment must pay interest. The total interest

pay ments before the scheduled maturity dates of these bonds amount to Rp. 600 trillion. If all the principals are paid

upon maturity , then the total outlay of the gov ernment will be Rp. 1 ,030 trillion. This is the best-case scenario. But

if the gov ernment cannot afford to pay the principal when it is due and decides to rollov er the principal or issue new

bonds, then automatically the interest burden will increase. For example, if all the outstanding bonds were rolled

ov er once with the same tenor, then the obligation of the gov ernment to pay principal and interest will balloon to Rp.

7 ,000 trillion. By assuming an exchange rate of Rp. 9,000, we can see that the gov ernments obligation to pay

principal plus interest is any where between US$ 1 1 1 billion and US$ 7 7 8 billion assuming that all bonds are rolled-

ov er once. If they are rolled-ov er more than once, then the amount will reach numbers that are almost

unimaginable. These figures are based on the calculation done by IBRA and were published in their bulletin titled

Analisa Ekonomi in April of this y ear.

This morning I receiv ed a letter without name and address of the sender. The content is a follow up Economic

Rev iew bulletin by IBRA, which is prohibited by the management to be distributed. It is dated May 2002. It said

that if we take the indexation of the bonds against inflation, the pay ment obligation by the gov ernemnt can grow up

to Rp. 1 4.000 trillion (US $ 1 .400 billion) in the worst case scenario.

These numbers are shocking in and by themselv es. But what is ev en more shocking is that the IMF forces the

Indonesian gov ernment to sell these recap bonds to the priv ate sector without considering the long-term implications

on the gov ernment budget. BCA has been sold with Rp. 60 trillion of bonds in it. Bank Niaga must be sold before the

end of this y ear using the same methodology as that of the BCA sale, again without first remov ing/reducing Rp. 9

trillion of recap bonds from Bank Niagas balance sheet. In the latest draft of the LoI, there is a list of all the banks

that must be sold in the same way , including Bank Danamon, Bank Lippo, Bank Mandiri, etc. All of these banks hold

substantial amounts of recap bonds

I mentioned before that banks which should hav e been liquidated were not liquidated because the Gov ernment had

no cash to pay depositors and sev erance pay ments of the employ ees. But how much would this hav e cost us, perhaps

hundreds of trillions of Rupiah? Yet now the Gov ernment is on the hook for ov er Rp. 1 ,000 trillion, but the IMF

assumes that we will hav e the means to pay this amount.



How can the Gov ernment ev er be expected to pay back the loans from CGI if we hav e to pay such high interest and

principal pay ments to serv ice the recap bonds? This is the reason I fought hard to cancel the sale of BCA, but in the

end I lost. I am now fighting again to cancel the sale of Bank Niaga. But rather than focusing all my energy on

fighting these silly and illogical sale programs, I decided to also focus my attention on the source of the problem,

which is the IMF contract with the Gov ernment of Indonesia.

I believ e our Gov ernment should amicably and in a gentlemen-like manner end the contract with the IMF when it

expires in Nov ember this y ear. This contract was signed by then-President Soeharto and Mr. Michael Camdessus

from the IMF. To my knowledge, this contract was supposed to end in Nov ember of this y ear. Of course, I was

saddened and shocked when I heard rumours that the IMF contract is now v alid until 2003. When I inquired to see a

copy of the signed contract, I was told by my staff that this contract is nowhere to be found. I still wonder if I made a

mistake in assuming that the contract ends in 2002 or is it possible that this contract was extended for one more y ear

without my knowledge?

Giv en my v iews and positions, does it mean that the re-capitalized banks should nev er be sold? Of course not. These

banks must be sold, but only when they are already healthy , which means that they can operate profitably without

continuous gov ernment infusion. It also means that they will be sold to the priv ate sector after recap bonds hav e

been remov ed from the balance sheets of these banks. We must start thinking creativ ely and innov ativ ely to find a

solution to remov e these bonds as quickly as possible. Bappenas together with sev eral independent financial experts

hav e already started to dev elop alternativ e scenarios. I just hope that when these alternativ e solutions are complete,

they can be accepted and executed by the relev ant gov ernment departments.

Some people hav e warned me about the possible consequences of not extending the contract with the IMF. Of

particular concern is the potential reaction from CGI creditor nations and from other international agencies,

specifically as it relates to the possible disruption in loan disbursements that Indonesia needs. But this will all depend

on y ou in this forum today . Therefore, in this opportunity , I would like to encourage y ou all not to shy away from

Indonesia ev en when we no longer work with the IMF. The engagement with the IMF was from the start designed to

end in January 1 5, 2001 , and then extended by President Wahid until Nov ember 2002. Nov ember 2002. I am

suggesting to honour the contract until completion and not to extend it. I dont believ e that this should be taken as a

sign of rebellion against CGI creditor nations.

I hav e concluded that Indonesia no longer needs to engage the IMF in order to maintain and improv e its economic

recov ery programs. The money that the IMF prov ides to Indonesia is of little benefit since it can only be used when

the reserv es of the Central Bank are completely depleted. But the reserv es of the Central Bank hav e been stable and

the outlook is also stable. Going forward, the programs in the Letter of Intent will also hav e little impact. This is

because the IMF only seems to be concerned with the mechanical implementation of decisions without considering

the impact of such decisions and without considering whether these decisions hav e positiv e and lasting outcomes.

I experienced this my self when the IMF directed my department to perform inv estigativ e audits on BULOG,

Pertamina, PLN and the use of reforestation funds, and to publish the results to the public. When I asked about the

benefit of doing this, the IMF responded that by publishing the results we could expect some form of social control.

Moreov er, if there is prov en fraud, the police and the office of the attorney general can be expected to take action, to

follow up with an inv estigation and to punish those that are guilty . This way , law enforcement will take place. I hav e

done exactly as instructed, and together with the IMF distributed the results of expensiv e inv estigativ e audits to the



press. But not a single word was printed, and nobody read the documents, not ev en the police and the attorney

generals office. But the IMF did not make a fuzz of this fact and ev ery thing was considered completed as per the LoI.

This example and many more gav e me the impression that the formation of the LoI boils down to a mechanical cut

and paste word processing effort, by using LoIs of other countries as templates. If I postulate the potential that the

Bank Niaga sale is part of a conspiracy to sell the bank to predetermined inv estors with a financial engineering that

is v ery damaging to the interest of IBRA, no one believ es me. What is important to the IMF is that Bank Niaga gets

sold before a specific deadline, no matter at what price and nev er mind the fact that it still contains Rp. 9 trillion in

gov ernment bonds.

There are also strange behav iours among a group of Indonesian economists. In the y ear 2000, a minister stated that

the Indonesian economy is recov ering with a GDP growth rate of 4.8%. This minister was mocked and laughed at by

the new order economists for prov iding this assessment. They remarked that the Indonesian GDP growth at the time

was consumer driv en, which is meaningless and not sustainable. But then later when Alan Greenspan mentioned

that improv ements in the US economy was driv en by consumer demand, these same economists imitated Mr.

Greenspan and stated that the Indonesian economy is also improv ing because of consumption. Now they are ev en

say ing that the Indonesian economy is already on the right path. Meanwhile, statistics show that capital

expenditures are still on a downward trend. Why do they change their mind ? If we believ e that the Indonesian

economy is already on the right path which I agree as from 1 999 and especially in the y ear 2000, then a question

looms large in our minds : if we are already on the right path, then why do we need to extend the IMF program?

In closing, I would like to summarize as follows:

1 . Technical arguments on the effectiv e use of foreign loan hav e been presented in a paper prepared jointly by the

World Bank and Bappenas. This paper will be distributed to y ou as an attachment to the text of my speech today .

2. I hav e not changed my ov erall point of v iew on the effectiv eness of loans and aid. This point of v iew was presented

and distributed in the CGI forum on Nov ember 8, 2001 .

3 . In essence, I believ e that any effort of reform by the World Bank, ADB and other international institutions will be

useless without addressing the main cause of the problem, namely the morally and mentally corrupt predisposition

of the indiv iduals.

4. I question the logic for continuous assistance from the CGI, amounting to additional loans of US$ 4 billion per y ear,

if the gov ernment is forced by the IMF to honour principal and interest pay ments on recap bonds that amount to a

minimum of US$ 1 1 1 billion and god knows what amount if we keep rolling ov er the principals.

5. I request for the IMF and the Gov ernment of Indonesia to honour the existing contract until the end of its term in

Nov ember this y ear. Thereafter there will be no need for an extension giv en that the economy is already recov ering

on the right path. If the IMF continues to demand for the gov ernment to sell gov ernment recap banks, our

calculations show that Indonesia will be pushed into a disaster of extraordinary proportions, potentially ev en

including social disturbances if at the end of the day the Gov ernment cannot fulfil pay ments of principal and/or

interest on the recap bonds. This is especially a realistic scenario if the creation of a market for trading bonds becomes

a reality . Hundreds of thousands of people holding these recap bonds may face the risk that the gov ernment end up



defaulting on these bonds.

6. It is important to remind ourselv es that during the 32 y ears of Soehartos rule, the gov ernment nev er borrowed

money from the people. The dev elopment budget was alway s funded by foreign borrowing from IGGI and CGI

countries. As I understood it, the reason for the gov ernment to av oid domestic borrowing was to prev ent crowding out

the priv ate sector in utilizing public sav ings. But now that public sav ings is ev en thinner than during the Soeharto

era, the v ery same economists feel that it is allright to utilize public sav ings amounting to thousands of trillion of

rupiahs. I find this difficult to digest and it is clearly logically indefensible.

In all, many may consider me to be nav e or ev en incompetent, but I believ e I owe it to this country to serv e my duty

as Minister by speaking the truth and prov iding early warnings when called for.

Thank y ou.

pidato cgi 2 (dalam bahasa inggris)

Documents