Additional debt burden<\/p>\n
The US$4.8 billion of new loans approved by the 35-member
\nConsultative Group on Indonesia (CGI) creditor consortium in
\nTokyo on Wednesday can be seen from different perspectives. The
\nIndonesian high-powered delegation to the CGI meeting that
\nincluded seven Cabinet ministers may boast of the new aid package
\nas a vote of international confidence in the government, notably
\nits economic team. That had always been the view expressed and
\npromoted by economics ministers under the Soeharto
\nadministration. The young generation may, however, feel
\napprehensive and greatly concerned about the huge burden of state
\ndebts that they have to bear in the future.<\/p>\n
But the market seemed to have expected that outcome, as can be
\nseen in the relatively small impact of the new loan pledges on
\nthe rupiah exchange rate and share prices. Most analysts have
\nargued that Indonesia, with government foreign debt already
\nreaching $75 billion, is too big a borrower to fail. Refusing to
\nbail out Indonesia would certainly be greatly detrimental to the
\neconomic interests of the CGI creditors and to the business
\ninterests of numerous banks and companies in the creditor
\ncountries which have lent more than $69 billion to Indonesian
\ncorporations.<\/p>\n
However one may look at the new loan commitment, there is one
\nthing that the Abdurrahman Wahid government should never do --
\nlet the CGI creditor endorsement get into their heads and feel
\ncomplacent. There is nothing to feel proud of about the new aid
\npledges as foreign debt repayment and servicing have exceeded
\n$5.4 billion a year, not to mention the massive burden of the
\nequivalent of $73 billion in government domestic debts incurred
\njust over the past 12 months. Moreover, the $4.8 billion pledged
\non Wednesday was not entirely fresh loans. Quite a portion of
\nthat sum consists of funds held over from last year's $4.7
\nbillion commitment that has not been spent.<\/p>\n
We should naturally be grateful for the new aid commitment as
\nit will provide a breathing space for the state budget -- the new
\nloans will partly plug the Rp 52.2 trillion ($7.1 billion, based
\non the Rp 7,300-to-the dollar average rate assumed for next
\nfiscal year) budget deficit next year.<\/p>\n
Most importantly, though, is that instead of rejoicing over
\nthe new loan pledge, the government should pay serious attention
\nto the warning shots given by major creditors at the Tokyo
\nmeeting. The creditors expressed disappointment with the
\nsluggishness of economic reforms, especially the pace and quality
\nof corporate restructuring. They voiced great concern over
\npolitical uncertainty, regional unrest, periodical outbursts of
\nviolence and policy slippage on the structural reform agenda.<\/p>\n
The government should magnanimously accept and act firmly and
\nconsistently on the warnings. It is honest advice from creditors
\nwho sincerely want to see Indonesia resume robust growth.<\/p>\n
The CGI creditors realize that their loan pledges and
\nendorsement are not enough to regain market confidence in
\nIndonesia. Without market confidence, Indonesia's economy will
\nnever rise from its multidimensional crisis. The International
\nMonetary Fund itself which has led Indonesia's bailout program
\nsince November 1997 has often admitted that the market remains
\nunconvinced about the nascent economic recovery since early this
\nyear. It acknowledges that the rupiah exchange rate that has been
\nhovering at Rp 8,800 to the dollar over the last few months,
\ncompared to Rp 7,000 early this year, is actually grossly
\nundervalued, not related to the marked improvements in the
\neconomic fundamentals. But the IMF assessment does not mean
\nanything in so far as the market sentiment is concerned.<\/p>\n
The test of Indonesia's resolve and the benchmark for market
\nconfidence is the pace and consistency of the implementation of
\nthe reform programs, notably those in bank, corporate and debt
\nrestructuring and good governance in the public and private
\nsectors. Bold actions are imperative to ensure a return of law
\ncertainty and social justice, the lack of which is rooted deeply
\nin the recent wave of regional tension, sectarian violence and
\nmob atrocities against legitimate, resource-based businesses in
\nremote areas. Failure to take appropriate action could weaken
\nthe market sentiment and slow or even subvert recovery.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/additional-debt-burden-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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