INDONESIAN SHERPA VIEWS IN ADVANCE OF G-20 MEETINGS

UNCLAS JAKARTA 000381

SENSITIVE
SIPDIS

STATE FOR EAP/MTS, EAP/EP, EEB/IFD/OMA AND E
TREASURY/IMB FOR MURDEN, MONROE AND BEASLEY
NSC FOR HENNESSEY-NILAND

E.O. 12958: N/A
TAGS: ECON EFIN ID
SUBJECT: INDONESIAN SHERPA VIEWS IN ADVANCE OF G-20 MEETINGS

REF: SECSTATE 17502


1. (SBU) Summary: Indonesia's key objectives for the upcoming
G-20 meetings are:

-- Agreement on the rapid recapitalization of the
multilateral development banks, even if governance reforms
are delayed.

-- Broader focus of G-20 deliberations beyond financial
market instability to include the negative impact on the real
economy.

-- Recognition that developing countries may not have the
capacity to implement stringent new financial and capital
market reforms immediately, requiring flexibility in
implementation.

-- Possible linkage between the IMF Short-term Liquidity
Facility (SLF) and regional programs such as the Chaing Mai
Initiative (CMI).

President Yudhoyono has still not committed to attend the
April 2 Summit. End Summary.

MDB REFORM URGENTLY NEEDED


2. (SBU) Indonesia G-20 Sherpa and Deputy Minister of the
Coordinating Ministry for Economic Affairs Mahendra Siregar
told EMBASSY on March 3 that reform of the multilateral
development banks must proceed quickly. He argued that
measures that allow the MDBs to recapitalize should be taken
immediately with broader governance issues moving on a slower
track if necessary. MDB recapitalization is needed to enable
MDBs to raise additional resources and provide needed support
to emerging markets in meeting the growing global downturn,
he argued. Emerging countries, especially middle-income
countries, face increasing difficulties in raising financing
in capital markets in the current global environment.
Indonesia proposes the establishment of a Global Expenditure
Support Fund to assist countries in carrying out
countercyclical spending.

IT'S MORE THAN A FINANCIAL CRISIS


3. (SBU) Siregar argued that the financial crisis has become
a real-sector crisis. The G-20 must therefore broaden its
focus beyond the financial sector to include broader policy
responses consistent with medium- and long-term economic
growth and development priorities. Siregar said that the
World Bank could provide important policy advice and
financing to help developing countries stimulate their real
economies. He said that the IMF is too narrowly focused on
finance and the WTO is too legalistic and technical to
provide the broad support needed by developing countries now.

FLEXIBLE IMPLEMENTATION NECESSARY


4. (SBU) Siregar said Indonesia recognizes financial and
capital markets reforms are crucial to restoring confidence
to markets. But he added there must be sufficient
flexibility in their implementation. He fears that some of
the reforms might be too rigid (or simply too sophisticated)
for emerging markets to meet them.

"INDIRECT LINKS" WITH THE IMF


5. (SBU) Indonesia and other developing countries still find
it politically difficult to go to the IMF for assistance,
Siregar advised. Despite some significant IMF reforms,
including development of new instruments such as the
Short-term Liquidity Facility, Siregar said developing
countries need an indirect link to make access to the IMF
acceptable. For example, he suggested the IMF engage with
CMI to consider creation of an indirect link to developing
countries through the establishment of a special window
providing IMF assistance to CMI-eligible countries without
additional conditionality. This would allow countries like
Indonesia to use IMF resources without risking a domestic
backlash.

YUDHOYONO'S PARTICIPATION STILL NOT CONFIRMED


6. (SBU) Siregar said that President Yudhoyono has not yet
committed to attend the G-20 London Summit on April 2 because
of its proximity to Indonesia's April 9 legislative
elections. He also expressed disappointment that the U.K.
government had not consulted with Indonesia before inviting
Thailand to attend the summit on behalf of ASEAN.
HUME